Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's third quarter 2020 results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Further instructions for entering the queue will be provided at that time.
Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. All dollar amounts are in Canadian dollars. Lastly, I would like to remind everyone that this conference call is being recorded on Friday, October 23rd, 2020. I would now like to turn the call over to Alain Bédard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead.
Well, thank you very much for the introduction, operator, and I appreciate everyone joining us for this morning's call. Yesterday, after market close, we released our third quarter results. If you need a copy of the press release, please visit our website. TFI International had a very strong third quarter. As I mentioned on our last call, we had seen several positive developments that bodes well for our performance going forward. These played out as expected during the quarter, and our strong financial and operation results came despite of the ongoing pandemic and despite our continued focus on the health and well-being of our employees and customers.
As you frequently hear me mention, a hallmark of TFI International's operating philosophy is our relentless focus on the fundamentals of the business, consistently getting the details right. We constantly seek opportunities to enhance efficiencies and increase returns on invested capital. We also look to optimize our free cash flow and our earnings per share, adding to our strong financial profile. This position of strength allows us to strategically expand our business with a long-term goal of creating shareholder value, and this includes returning excess capital to shareholders whenever possible.
During years such as this, when macro uncertainty is elevated, we believe that maintaining our culture and adhering to these principles is even more important. You see it in our quarterly results that I'll next walk you through, and you also see it in our continued identification of strategic accretive acquisitions opportunities to expand and enhance our platform.
During the third quarter, we completed four acquisitions, and we agreed to acquire an additional business expected to close during the fourth quarter. In addition, subsequent to September, we completed two additional acquisitions. In total, that's seven well-timed and highly strategic acquisitions since our last call. I won't walk you through the compelling rationale for each, but I do invite you to read more in our recent press releases as we extend our long and successful track record in this regard.
Turning now to TFI International's third quarter results, let's start with our high-level performance. As a reminder, these results are despite the continued absorption of COVID-19 related costs and our continued focus on health and safety. Our total revenue of CAD 1.2 billion was down 4% compared to the prior year's third quarter. This was a significant improvement over the second quarter's negative 17% year-over-year growth. More importantly, our operating income increased 18% to CAD 156 million, and our adjusted EPS on a diluted basis expanded 20% to CAD 1.25, up from CAD 1.04 a year earlier.
Our net cash from continuing operation activities was a healthy CAD 190 million. That was up slightly over the prior year. We view cash flow as strategically important as it allows us to invest in our business and seek expansion opportunities. Overall, we were very pleased with our performance. More specifically, let's look at how each of our four business segments performed, beginning with our P&C, Package and Courier. Our Package and Courier represents 14% of total segment revenue and saw a 5% increase in revenue before fuel surcharge versus the prior year. Operating income of CAD 28.5 million was up 1% as the segment operating margin of 17.5% compares to the 18.2% the prior year. These year-over-year P&C results were much improved over our second quarter performance.
Throughout the third quarter, we saw a pickup in B2C activity, and even B2B, which has slowed significantly due to the effect of COVID-19, improved as the quarter progressed. Going forward, we believe our P&C segment is emerging even stronger from the pandemic with a more balanced mix of B2C and B2B demand that we are well-prepared to accommodate.
Moving to LTL. This segment represents 16% of our total segment revenue and generated revenue before fuel surcharge of CAD 177 million, down from CAD 205 million the prior year. That rate of year-over-year decline is much improved, and in fact, half of that was during the prior quarter, reflecting a rebound in demand. Importantly, our operating income grew 36% to CAD 35 million, and our operating margin expanded more than 700 basis point to 19.7%. This 36% year-over-year growth in operating income was a result of not only the Canadian wage subsidy of CAD 8 million, but our significant success driving operating leverage, for example, by merging our Canadian Freightways and TST Overland Express operating companies in May. These ongoing efficiencies significantly benefited our margin and more than offset the weaker demand environment.
Turning to Truckload. This is our largest segment, representing 47% of our total revenue. Revenue before fuel surcharge declined 2% year-over-year, which was a sharp rebound from the 17% decline in the prior quarter. Truckload operating income declined just slightly to CAD 75 million from CAD 76 million in the year earlier quarter, and our operating margin was up slightly. It should also be noted that we had CAD 6.4 million of higher gain on sales of real estate in the year-ago quarter. Within this segment, our U.S. Truckload operation grew revenue 2.5% over the prior- year period, while our Canadian and specialized businesses each saw a single-digit percentage decrease in revenue, which led to a Canadian wage subsidy of CAD 11 million.
Rounding out our segment discussion, Logistics is our second-largest segment at 22% of total revenue. We saw year-over-year growth of 9% in revenue before fuel surcharge. Our operating income more than doubled in the quarter versus a year earlier at CAD 30 million compared to CAD 14 million the prior year. Our operating margin came at 10.7%, well above the year-ago 5.4%, as our margin improvement initiatives have produced solid improvement on the bottom line. E-commerce and same-day package delivery demand remains powerful organic growth driver for us.
Turning to our balance sheet, it remains a meaningful source of strength for us, allowing us to execute on our business plan. We further strengthened our financial profile in August with a share offering that provided gross proceeds to TFI of approximately CAD 290 million. Our strong liquidity further benefited from our strong cash from operations during the quarter. All in, we ended September with our long-term debt down 27% since the start of the year and a total of CAD 1.5 billion of liquidity.
Given our continued strong operating performance and very solid financial position, I'm pleased to be announcing today that our Board of Directors has announced a sizable 12% increase in our next quarterly dividend payable in January. In addition, I'm pleased to report that as business conditions have improved and TFI International has continued to perform, during the quarter, we reinstated four-, five-day work week for 486 employees, and we rehired 298 employees full-time who had been furloughed.
Lastly, wrapping up my prepared comments today, I want to update you our full outlook for 2020. We now expect diluted earnings per share to be a minimum of CAD 4.00, up from our previous range of CAD 3.40-CAD 3.75. We expect our free cash flow, which is a non-IFRS measure, to be a minimum of CAD 600 million, up from CAD 425 million-CAD 460 million previously.
In summary, as I mentioned at the start of the call, at TFI International, we focus on the fundamentals of the business and optimizing our capital allocation regardless of constantly changing macro conditions. Specifically, we invest in a highly disciplined manner where we see the best risk-adjusted return while also paying our quarterly dividend. On a day-to-day basis, our entire team looks to drive efficiencies and produce not just growth, but profitable growth. Our ultimate aim is to create and unlock shareholder value, returning excess capital to shareholders whenever possible. I want to thank the entire team at TFI for generating the results I just outlined and for their continued dedication to this unprecedented year. With that, operator, if you could open the lines so we can begin the Q&A session.
Thank you. Ladies and gentlemen, to ask a question you need to dial star one on your telephone keypad. To withdraw your question please press the pound key. Callers are limited to one question and a follow-up in order to get to as many callers as possible. Again, that is star one to ask a question. Please hold while we compile the questions. Your first question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.
Morning, everyone. Morning, Alain. Thanks for taking my question. I want to start out with two longer- term questions. First on M&A. Obviously, you guys have been super busy this year, even with everything going on, and you've just made what one would consider to be a fairly sizable acquisition. Can you remind us again what your pipeline looks like? Are you guys taking a little bit of a break here? Also, with the stock market where it is, do you feel like valuations out there are compelling for you to go after new targets?
That's a very good question, Ravi. M&A has been the secret sauce of TFI for the last 20 years. What we've done so far this year is just some small tuck-ins that we do every year. We invest about CAD 200 million. So far, we've invested only CAD 100 some million, CAD 110 million, CAD 115 million with some very nice small strategic acquisition. For sure, we're going to be closing the DLS acquisition, which is the significant one for us. We're going to be closing that sometime early in November. Okay. Everything is done. That's going to be a great acquisition for us.
Now, in terms of the pipeline, our pipeline is always very full. In Canada, if someone wants to sell his company, the first call is always TFI. Why? Because we have a strong track record of closing transaction, number one. Number two, if we create an environment where someone sells his family-owned company to us, we keep the value, this kind of environment that is proper to growing the business. We've done well.
In the U.S., we're new players, okay? For sure. What we've done so far is some significant transaction, the CFI one, like three years ago. Now the DLS one. We've done Dynamex in 2011. Our future for significant transactions, for sure, we've said it many times, it's got to be south of the border. It cannot be in Canada because we're such a dominant player in Canada. If we try to buy a company with revenue that is a little bit more than CAD 90 million, then we have to sit down with Competition Bureau in Ottawa, and it's a long, long process and takes an awful cost with lawyers and things like that.
Yes, we've been really busy, but this is normal for us. What is a little bit less than unusual is that every three years or about, we do some significant transactions. This is why DLS is a significant transaction. Not that big, but it's important to us. We're going to be investing $225 million on this acquisition. It's a strong team led by Tom, and we have a lot of faith in the future in that business. It's our first step into the U.S. LTL market through this asset-like kind of acquisition. We're going to use that to really understand the market drivers of this LTL market in the U.S., which is a little bit different than probably the one in Canada.
That doesn't say that we're going to be stopping. If you look at, we've got CAD 1.5 billion of liquidity available for us for M&A. We're going to be spending in Canadian dollars about CAD 300 million on DLS, so we still have a lot of dry powder. If we find the right acquisition, the right fit, absolutely, we're going to jump on it. We have a deep bench. In Canada, our team is second to none. In the U.S., we're beefing up the team.
Again, this DLS acquisition is going to beef up our team. All these small acquisitions that we've done in the U.S. through our specialty TL, now we're running probably a little bit more than 1,000 trucks in our specialty Truckload, which three years ago we were, well, zero, right? We've got a lot of faith in this economy in North America, U.S. and Canada. I think that once this election is behind us, some concern will probably evaporate. Then 2021, we see a lot of tailwind for transportation, lots of potential.
Now, in terms of valuation, I think that there's still ways to do a transaction that is accretive day one. Doing a transaction that's accretive after 10 years, well, this is not my bag. We're not really in that business. Accretion has to be day one, and normally without any synergies, because day one, you don't have any synergies. You start the business, and here we go. If you look at DLS, if you look at everything that we've done over the last one year, that's how we were able to build this TFI, which we're really proud of today and very proud of our people, our team.
Great color. Thanks, Alain.
Thank you, Ravi .
Your next question comes from line of Jason Seidl with Cowen. Please go ahead.
Thank you, operator. Good morning, Alain and team. I wanted to focus a little bit on some of the trends you've been seeing across your different business lines as we sit here in 4Q. I'm curious to know sort of the rate of recovery you're seeing there. Then talk about how that's going to impact the bottom- line profitability, especially with the Canadian wage subsidy eventually going away.
Yeah. Well, absolutely. A very good question, Jason . If you look at our Q2, the subsidy in Canada was about CAD 22 million. The forecast for us in Q4 is going to be about just a few million . Our P&C, if you look at what we've been doing so far, is our mix of B2B versus B2C has changed in Q3. But our profitability has not changed that much. If you look at our P&C in Q3 and going into Q4, our B2B is still down year-over-year. If I look at ICS, if I look at TFIS, which are our specialty P&C guys, mostly B2B, ICS is still down about 5%, 6%, 7%. TFIS is still down about 20%. Globally overall, our P&C is up a bit. That means that we've replaced a lot of our B2B with B2C without affecting our bottom line too much.
If you look at our adjusted EBITDA, it stayed about the same. That's our goal going into Q4 and into 2021. We'll keep growing this B2C. Hopefully, all of our B2B comes back. Probably there's going to be some leakage because as we know, e-commerce is eating a lot of the lunch of the brick-and-mortar guys. Maybe there's a permanent impairment in some of our B2B business. We'll see. We're back. We are replacing B2B with B2C without affecting the bottom line because we're focused. We have a very solid plan to replace the B2B that is gone and also growing the global revenue of our P&C, which I think in 2021 you'll see even some better organic growth.
Going into e-commerce, it brings me to the next sector, which is our logistics. Logistics is on fire for us. If you look at our last mile operation in Canada, we're doing so good. So good in terms of increased revenue and so good in terms of bottom line, but Canadian market is small. If you look at our U.S. market, one of the main driver of our bottom-line improvement in our logistics is our U.S. last mile operation, which the top line has not grown because we're still getting new business in of quality and at the same time, we still have some business that are, let's say, 2%, 3%, 4% bottom line and Kal and his team are saying, "You know what? 2%, 3%, sorry guys, we can't service you for 2%, 3%.
You guys have to walk." What you're going to see in 2020 and into 2021 is that the bottom line of our U.S. operation is going to keep on growing, getting closer to a double-digit EBIT. That's the goal. Top line will grow, but not by much because we're still replacing 2%, 3%, 4% bottom-line guys with better quality of bottom line.
Now, if you look at our LTL, here's the problem. In Canada, most of the LTL is retail. This is why you see us in Ontario and in Quebec. Not so much out West because the West is small, but there was never any industrial LTL out West. There's nothing to lose there. This industrial LTL in Ontario and Quebec keeps on coming down. This is why revenue keeps on going down year- over- year organically and at the same time, some of our brick-and-mortar guys, LTL guys' customers are also losing to the e-commerce. This is why we're still down big time in our LTL. At the same time, all the right moves that we're doing and focusing on the right lane, the right customer, the right weight break. We're not in the business of hauling freight for CAD 40. Leave that to the other guys.
Our LTL for sure needs to grow through M&A. We're looking at all kinds of opportunities. What can we do on that? We were trying to buy APPS. We announced this acquisition. Finally, there were certain closing conditions that were not met. We had to say, "Well, okay, we will look at something else." The LTL, it is going to be organic growth into 2021, yes. I think that we are going to keep growing the dollar of the bottom line through our efficiencies and hopefully we are working on different scenarios to keep growing the top line on our Canadian LTL.
Now, if you think about our U.S. truckload operation, has done okay in Q3. Revenue is about stable. Our CFI operation did a little bit better than TCA. Our MCT acquisition is doing really well. Our specialty truckload is still affected in Canada. Some of the mines are coming back. Construction is okay. The automotive business is still not where it should be. Steel, aluminum is affecting us a bit. I see 2021, our U.S. TL will definitely improve. Absolutely. I think our Canadian specialty and van division also will get to see some improvement there.
Overall, I'm very confident. This is why when we give guidance for 2020, we say EPS is going to be a minimum of CAD 4.00. EBITDA is going to be probably a minimum of CAD 900 million. I think that 2021 is really going to be a lot of these small acquisitions that we've done in 2020 plus the DLS one that's closing at the end of the year. It's going to help us into the 2021 year and I think that TFI will again produce even better results in 2021 versus 2020, even without the Canadian subsidy.
That's fantastic. Alain, if I could sneak this last one in. CapEx, I mean, obviously you had CapEx deferred.
Yes.
In 3Q, you had lead times go out on equipment, which everyone's been experiencing. How should we think about CapEx for 2021?
On Q4, our CapEx for sure, you'll start to see net CapEx probably going to be between CAD 50 million and CAD 60 million into Q4. Some of the lags, some of the CapEx that were put on hold will be taken care of in Q4. If you look at 2021, globally, TFI net of disposal in Canadian dollars, we should be running around the CAD 200 million mark.
Okay. That's great. Listen, I appreciate the time, as always, Alain. Nice job on quarter.
Pleasure. Thank you, Jason.
Your next question comes from the line of Allison Landry with Credit Suisse. Please go ahead.
Thanks. Good morning.
Morning, Allison.
I'm good. How are you?
Thank you.
I was wondering if you guys could speak to the U.S. TL segment, and specifically what your expectations for contract rate increases might be for 2021. Do you see an opportunity to maybe price a little bit higher than the market given your yield improvement initiatives?
Yeah. A very good question. What we're seeing as of now, okay, is that contract pricing is up by about 5%, 6%, 7%, 8 %, depending on the customer. We all see the spot rate going through some good levels right now. We believe that the quality of revenue for our U.S. TL operations for 2021 will definitely improve. Even more importantly for us, Allison, is always what can we do, us, to reduce our cost? One significant thing that is one of our projects for us in 2021, which we put on hold in 2020 with the COVID-19, but it's back on track now, is our TMS. Our guys are doing a fantastic job today with tools of the 1980s, in terms of IT. Okay?
The discussion that we had with Greg and the rest of the team there is that, "Guys, we need tools of the 21st century, not the 20th century." Okay? This is why we picked McLeod as a new TMS, and we're doing right now the study phases of all that, and we should be in a position, according to what the guys are telling me, to start looking at implementation sometimes in 2021. That's one thing that it's got nothing to do with the market, okay? It's something that us, we could do to have better tools to our management team to do a better job. Bring better efficiency.
You know, the motto at TFI has always been, "You guys, we have to do more with less." Yes, I agree with you. I mean, we have a tailwind in 2021 with the quality of the revenue. Rates should start to improve. The freight is there. We're always pre-booked. Every morning now, we're pre-booked. Six months ago, guys, or a year ago, guys were saying, "Well, we got drivers. We don't have the freight." Now, well, the problem is the opposite.
We have more freight than we have drivers. It may be a nice problem to have, but at the same time, as we say to our team, "Guys, we have to work on our cost basis. We have to be the tiger." The tiger is always the last one to survive in the jungle. Low costs always help the company. The same thing with our Canadian truckload. We're always working to bring our costs down and improve our efficiency. But 2021 for sure, like you said, tailwind for us in terms of pricing improvement.
Okay, great. Just maybe in terms of capital allocation, great to see the dividend hike. Could you speak to how you're thinking about the buybacks going forward?
Well, buyback is for us always been seen as M&A, right. It's either you buy something outside of TFI or you buy your own stock. Right now it's always a balance between, it's adjusted return. What can we buy versus buying TFI. Right now our pipeline is, like I said earlier, is full. We got lots and lots of opportunities. It's just which one can we do and which one's got the best returns. What we've been doing, if you look at the earlier in 2020 when our stock dipped, when the COVID thing hit and our stock dipped, we bought back about 1.5 million shares at the time. Okay. I think it was Q1 or early into Q2. We took that opportunity at the time. So, okay, fine.
Right now our focus is more on M&A. Okay? It's always a balance, depending on what the stock reaction is going to be. I mean, like I said, we've got CAD 1.5 billion in liquidity. Okay? Yes, through the DLS transaction, that's going to come down to probably CAD 1.2 billion. This is always the question. Okay, what is the best adjusted return? Is it buying back TFI's shares or investing in growing the company through M&A, right? It's a balance. My number one job as a CEO at TFI is to control the cash. You control the cash by what's our policy on dividend? 20%-25% of our free cash flow goes back to our shareholder. That's our policy. That's why we're able to increase it by 12%.
Then you've got reduction of debt, which we did this year. Okay? Then, hey, M&A. Yes, we always invest about CAD 200 million a year on M&A with small deals. Once every three, four years, we do something significant. DLS is important, significant. TFI was significant because it was CAD 500 million invested. DLS is important, but it's not CAD 500 million. For us, right now, TFI, if you want to talk a significant transaction is CAD 500 million. DLS is important, but it's not the size of the big whale that we always talk about every three, four years.
Okay, excellent. That was a helpful framework. Thank you.
It's a pleasure, Allison.
Your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.
Hey, thanks. Morning.
Morning.
Alain , I just wanted to check something on the guidance. CAD 4.00, you've done, I guess CAD 3.10 or CAD 3.11 year- to- date. Should we be expecting-
Yes
...a drop off in the fourth quarter as the subsidies go away? Is there a conservatism here? Just help us think about what this means for fourth quarter.
Well, we are very conservative us at TFI. One of our motto is, "Under promise and over deliver." For sure, that's why we're saying a minimum of CAD 4.00. Now, you could say, well, if you say a minimum of CAD 4.00, that means it's a minimum of about CAD 0.90 for Q4. Is that because the subsidy is going away? Subsidy is going away, absolutely. Subsidy for us in Q4 is probably like a few million dollars. Our CAD 0.90, okay, if you say minimum of CAD 4.00 Versus CAD 3.10 is CAD 0.90 compared to CAD 1.20 something today, ooh, that means that they believe that this is going to drop like CAD 0.20 to CAD 0.30. Probably not, but we want to be conservative.
Remember, our last guidance was CAD 3.40 to CAD 3.60, right? Now we're saying CAD 4.00. We always like to under promise and over deliver. This is why we say a minimum of. That could be CAD 4.00, it could be CAD 4.10, could be CAD 4.15. We know October, okay, we have an idea of what's going on in October, but we don't know anything about November and December. This is why we're careful. We have confidence because, if we don't have any confidence in 2021, why would we raise our dividend? We know our team is solid. We have a fantastic plan, okay, for now and into 2021. We want to be conservative.
Okay. Makes sense. With DLS, just because it's the larger one, maybe just help us a little bit more with just the strategic rationale here. I think it was running around a 5% margin business where you think you could take it.
Yes.
And then-
Yes
...maybe just the grander plans for LTL in the U.S. would be helpful.
Yes. That's a very good question. First of all, when we look at DLS, 5% for sure, we believe that we could do better than that. Working with Tom and the team over time. It's not going to happen overnight, okay? Over time, if one in the same kind of business as DLS is a 7% bottom line guy. Well, why are we not 7%? Over time, we'll work with Tom and his team to get from 5% to 6% to 7%, and maybe 7% to 8% or whatever. We don't really like being a 5% bottom line guys, but hey, it is what it is today. What we believe is good is that we know the LTL business in Canada inside out, okay? We know this business really, really well. We know the market, we know the players, et c.
This DLS acquisition will help us understand better the players in the U.S., the market in the U.S. When we look at the U.S. LTL market, for us, it's like a gold mine, and the Canadian LTL market is a sand mine. In Canada, you can't improve pricing because there's too much over capacity. That's why our revenue is down every quarter. Market is shrinking, our competition is not adjusting, they're always chasing volume and trying to survive. The U.S. LTL market is different. You've got some fantastic company that one of them is running a sub-80% OR. You've got others that are family-owned that probably run in the 80%- 90% ORs. You got some public one, non-union that run 90% OR, you got guys, the unionized guys, that's a different story.
Not to say that union is bad because, if you look at the largest trucking company in the world, they're unionized with the Teamsters, and they do a fantastic job. I'm just saying us, we're also some of our operation in Canada is unionized, and we do very well. We work with the union, not a problem at all. It's one way. It's like we're going to school. We're just trying to understand the different drivers in this U.S. LTL market, because DLS is about 70%-75% LTL, and 20% truckload, and the rest is freight forwarding. It's like going to school.
We want to understand this market better because we believe that the LTL in the U.S., between you and me, it is a much better business than the one in Canada, but, h ey, too bad. That's where we start is with the Canadian LTL business. We've been working day and night to improve this. If you look at our results, yeah, our revenue is down. Bottom line is up, though. Even if you exclude the subsidy of CAD 8 million in Q3, our revenue went down big time, but exclude the subsidy, our bottom line is still up CAD 2 million, and we're stuck with all kinds of fixed costs, the trucks, the terminal and all that. That tells you how efficient we can be or we are.
Thank you.
Your next question-
You're welcome.
The next question comes from line of Walter Spracklin with RBC Capital Markets. Please go ahead.
Yeah, thanks very much. Good morning, Alain.
Morning, Walter.
I'd like to focus a little bit on your margins here because you brought back a lot of costs and still got the operating leverage, right? You brought back all your employees. A lot of other companies saw a lot of cost creep come in, but you were able to actually improve your margins as the volume came. The operating leverage looks pretty attractive.
I want to ask you, Alain, you gave us good color into the fourth quarter here, but when we go into next year, if we back out the Qs impact, looking into next year, do you think that your margins for next year can hold in at the level that you did in 2019? therefore, with the acquisitions you've done, can you give us a little bit of indication as to kind of order of magnitude the improvement that we could see next year? I don't know if you're prepared to give us directionally some guidance in the next year or not, but that'd be very helpful if you have it.
Yeah. Well, you see, Walter, we can't give guidance for 2021. What I could tell you is, like I said earlier on the call, is that our P&C in 2021, which P&C the subsidy, like it was chicken shit. It was very insignificant in a sense. Yes, ICS and TFIS, but Canpar and Loomis, there was no subsidy at all. We believe that in 2021, excluding the subsidy, there's no subsidy for us, I think in 2021 for our P&C, we're going to do better. We're going to do better because even with our B2B down a bit, okay, because we're still going to do some catch up of our B2B in 2021. Our B2C is going to keep on growing, okay, at a reasonable rate, not going crazy, but a reasonable rate, okay, that we could sustain at the same time our bottom line.
Our truckload in the U.S., there was never any subsidy, but our Canadian truckload, most of our subsidy came to our special TL, okay? This will be probably eliminated in 2021. We believe that we can sustain the margin because some of the market that we've been affected badly are coming back. Some of the small deals that we've done, like the Keith Hall, okay, and others that we've done in Canada, okay, is going to help us beef up this margin. We have some very, very nice project in Montreal, okay, with our Contrans division there. We have some nice project in the Port of Hamilton with TTL. We have some nice project also with Gorski and what's the name of that? Gusgo that we just bought about a few months ago.
I believe that even 2021, Steve and his team there are going to yield a fantastic 2021, even if you exclude this COVID, this subsidy there. If you think about our logistics, there's no subsidy there. Our logistics will be up big time at the bottom line because of what I just explained. We're left with the LTL. The LTL, that's why we were trying to buy this APPS company, but finally we couldn't do it. LTL is an issue because we think that organically the LTL, okay, is negative into 2020 and into 2021. The market is shrinking. We have to do something in M&A to help us support. The subsidy will probably go away sometimes in 2021. The guys are working on it.
We are in discussion, okay, right now for something significant in terms of a contract with a carrier, okay, that maybe could help our LTL business in Canada. It's still early in the game. Maybe we'll be in position to announce something sometimes before the end of the year, maybe into next year. The LTL in Canada will have to grow through M&A. If perhaps we couldn't do the deal, okay, we're working on plan B right now.
That makes sense. Just a quick one on your M&A pipeline in the U.S. Any risk that gets affected by a U.S. election that sees, for example, a higher capital gains tax come in? Is there any risk around an election that would affect your U.S. pipeline at all?
I don't think so, Walter. We don't know what's going to happen there in two weeks. We believe that this U.S. economy is going to stay strong, whoever runs the country. We're no magician. Our goal is that we adapt. We adapt and we adjust and we work for the future of our shareholder. Don't forget, TFI is in business, number one, to create value for shareholders. That's our goal.
Just one more housekeeping for me. Tax rate, you've been guiding us, I believe, at 25%. Is it still around that level we should-?
Yeah. Yes, Walter. Yep.
Thank you very much. Keep safe. Thank you.
Okay. Thank you, Walter. The same to you.
Your next question comes from the line of Tom Wadewitz with UBS. Please go ahead.
Yes, good morning.
Morning.
Yeah. I wanted to feedback a little bit the U.S. truckload. I think you were asked a little bit earlier about kind of pricing in 2021. It seems like the setup's pretty powerful. The biggest U.S. truckload names said they expect double-digit pricing in 2021. It's an unusually strong framework. What do you think the OR in your conventional U.S. truckload business can be? I think, kind of best in class is 80%, high 70s-
Yeah
...low 80s in a strong cyclical environment.
Yeah.
Do you potentially get to that in 2021, or is that kind of a multi-year potential for your U.S. truckload?
Yeah, very good question. What we keep on saying is that you cannot be in the truckload business if you don't run a 90% OR and better on average over 10 years. That means that, if you have tailwind, like we will probably have in 2021, it's impossible to run a 90% OR. You get to run better than 90%. Okay? If you look at what we've been doing in the last quarter, we're running about a 90% OR right now, 90 point something. Okay? Which is, for sure the guy will say, "Well, we've been affected with the equipment. The profit and equipment is gone because the market has not been so good." No. Okay, fine.
For us, in a tailwind situation like we anticipate in 2021, I think there's no excuse to be running a 90% OR. You have to be focusing on something sub-90% OR, because on average, you're going to have maybe some bad years at a 93% OR. When the good years are coming in, you got to be a sub-90% OR. Now, I haven't seen our plan, our budget for 2021 yet. Okay? Greg and his team are working on it, and we can't really provide guidance for 2021 so far, but I would be really disappointed to see a 90% OR in our plan for 2021.
Right. Okay. the second question is in logistics. Your logistics margin improved pretty dramatically. Can you just give a-
Yes
...a little perspective on what drove that and, kind of the forward look, do you sustain at that level or, how do you think about the margin looking forward as well? Thank you.
Yeah. Well, most of the improvement, so if you look at our improvement, there's about CAD 4 million of bottom-line improvement that came from Canada. Canada is small, okay? The majority of the improvement came from our U.S. operation in the quarter, in Q3. You'll see us improving in the U.S. even more as time goes by. What we've done a year ago, if you remember what I said a year ago, I said, "Guys, we're making a change in leadership in the U.S." What we're doing is Kal, which is our EVP that was responsible for Canada, now oversees our U.S. operations since last summer, 2019. Okay? We've been rebuilding the team. The sales team now is under the leadership of Dean. Okay? Dean is overseeing our North American last mile operation, both U.S. and Canada.
We just signed, we just start servicing a CAD 16 million account in the U.S. with some interesting and fair margin. Our U.S. Q3 last mile operation had the majority of the improvement. Absolutely. You'll see that improving over Q4 and into 2021. Like I said earlier, the top line of our U.S. operation will probably not grow that much because we're still replacing 3%, 4% bottom line guys with better margin. Right?
That's our goal. We're not in business to practice delivery. We're in business to create shareholder value. A guy that gives me a 2% bottom line, deal with someone else because, for 2%, my shareholder will say, "Why would I buy TFI for 2% bottom line? I'm just going to buy shares of a North American bank and I'll get a 3%, 4%, 5% dividend." Stupid, right? That's our goal, and you'll see us in Q4 again. Now, the average with DLS, like we said earlier, DLS is adding a lot of revenue to our logistics at only 5% margin. Globally, it will reduce our percentage, but we'll work on that in the months and the quarters to come.
Right. Okay. Thank you.
Pleasure.
Your next question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.
Hi. Morning, everyone.
Morning, Jordan.
Good morning. A question for you. On the LTL, I know you mentioned you'll need organic, it'll be organic growth, and you might need some M&A to support. I'm assuming you're talking about the top line there. I'm just curious because your LTL margins-
Yeah
...even without the wage subsidy in the third quarter were quite good. So-
Yes.
...putting the top line aside, do you think you could hold or improve upon the efficiencies for the LTL margin?
Well, we still have plans to improve the margin, Jordan, but the top line, like I said, without M&A, is going to shrink.
Yes.
Dollar-wise, I think that we can sustain dollar-wise even with some revenue leakage, because of the market. For sure, our approach is to do some M&A activities in Canada, to beef up the top line, and it will also have an effect. I'm not saying that without the top-line growth, it's not sustainable, our margin. No. Our margin are sustainable because we still have some stuff that we could do to keep on improving what we're doing today.
Great. just a bigger picture question. On M&A, as you guys have gotten larger as a company, I know historically the strategic deals were every three, four years apart.
Yeah.
Do you think there's a need to make them, or will you need, or would you want to have them come more quicker as you've gotten larger? Is that something that might need to happen?
You know what? That's a good question, Jordan. This is based on the deep bench that we have. In Canada, we have a very deep bench, a team that's second to none. The problem we have is it's a small market, okay? We're already really, really big. Our plan has been to beef up our U.S. team because the future is in the U.S. for us to grow our business significantly. That has been the focus of ours. DLS, okay, will add, will beef up our team in terms of market intelligence in the LTL. If ever there's a transaction possible in the LTL in the U.S., I don't know, maybe a company that becomes for sale, whatever. Now with DLS, at least before buying an asset-based company, we'll have some market intelligence. We have a team.
It's the same story with our specialty TL in the U.S. what we've done so far is small acquisition. We bought a 200-truck operation here, another 200 truck there, and now we're up to a little over 1,000 trucks. if a deal comes to us, let's say for 1,000 trucks, now we could do that easily. also, our strategy has always been small step, but I agree with you, the bigger we get, the larger the small steps becomes, right?
Yeah.
So, our focus really has got to be for us small deals in Canada, okay, small nice tuck-ins, which we're doing now, and hopefully we can find the right transaction after DLS of size in the U.S., maybe in the specialty TL, maybe in the last mile, and we never know, maybe in the LTL. We'll see.
Great. Thank you.
You're welcome.
your next question comes from line of Mona Nazir with Laurentian Bank. Please go ahead.
Good morning, Alain, and congrats on a fantastic quarter.
Thank you, Mona.
I'm just going to keep it to one question, but when I'm thinking about your tenure at TFI, future performance and the legacy you want to leave, I'm just wondering, what is your ultimate guiding principle or metric that is weaved into every decision you make or that mentally you keep reverting back to, and has it changed over time? I mean, just even on-
I don't know.
Yeah. Yeah, go ahead.
Yeah. Well, Mona, our religion to us is, like I said, for years and years, we're in business to create shareholder value. This has been our number one rule at TFI, okay? How do we get this done is by focusing on free cash flow. Some of the guys say they talk about EBITDA this, EBITDA that. Us, we say, okay, EBITDA, fine, we understand that. For us is what's the free cash? What's left, okay? Because you could have CAD 100 million of EBITDA, but if you have CAD 98 million of CapEx to sustain the business, well, there's not much to do. If you look at our track record of 20 years, that's how we've been able to build TFI. It's based on the focus of creating shareholder value. That's never changed. Because don't forget, I'm an important shareholder of TFI from day one.
Also, how do we get there is through people. Team, people, and focus on free cash flow and the payback. Someone comes to me and say, "Alain, we have to invest CAD 1 million for this customer, and the return is going to be one point." Well, find somebody else because we're not in the business of one point, two point, three points. That's not us. That's always been the focus at TFI. Everything is about creating value for our shareholders. Yes, through servicing customer and focusing on the team. Team, people, the right guy. We built a fantastic team of EVPs are doing a great job. We're beefing up the team. This acquisition of DLS is going to add another significant player to our team and we're really proud of that.
Thank you. I'll leave it there.
Thank you.
Your next question comes from line of Sanjay Ramaswamy with Bank of America. Please go ahead.
Good morning, and thanks for taking my question.
Alright.
I'll also keep it to one here, but maybe just talking about B2C and the shift that we did see in 2Q. Maybe how do we look at the right mix between B2B and B2C, maybe over the next couple of quarters? Is there a specific kind of business, whether it's in the U.S. or Canada, that you prefer here? Any other details would be great there.
Yeah. A very good question. For us, B2B is really what can we do and how much can we do? Our focus always been to keep on growing B2B, but it's tough to do being in the market environment because our customers are being, use the word attacked by the e-commerce. Okay. We're trying always to protect our B2B and to try to grow the B2B. We live in a world in 2021 that e-commerce is growing. We got to be part of the solution, and that's what we're doing. Okay. So, we're growing.
Now, in terms of the mix, is the mix 50/50? Is the mix 60/40? I don't know, okay, what's the best mix is. One thing I could tell you is that we're trying to protect and grow our B2B because that is the coincidence of delivery is always more, versus B2C, which is one stop, one parcel, normally. We know that e-commerce is growing and B2B is not growing as much.
This is why we came with a solution that really focus on not just growing e-commerce everywhere and anywhere with any rates. Our focus has been, "Guys, let's grow where we can protect our margin and keep growing the revenue of the company." If you look at our Q3, okay, this is what we've been able to attain. If you ask me about future, probably in two to three to five years, we're going to see more, okay, of this growth in e-commerce, B2C, than we're going to see in the growth of B2B.
But we are also controlling the growth, okay, of our P&C solution, okay, because we don't want to offer more capacity and come up with a 3% bottom- line solution. our most efficient solution, okay, to the e-commerce is our last- mile operation. this is what we've been growing, okay, in a very important way in Canada, not so much in the U.S. for now, okay, but that's going to be a real focus of ours in 2021 in the U.S.
But in the U.S., like I said earlier, we still have some small margin accounts that needs to be adjusted or changed or replaced. that's why we believe that in 2021, our top line in the U.S. is going to improve a bit. most importantly, the bottom line will keep on improving a lot. I don't know if this answers your question 100%, but our focus is bottom line. How do we get that? Right now, we know that B2C is part of the solution.
Perfect. No, that's great color . Maybe I'll ask one more follow-up question. Just in terms of the freight cycle, obviously we're seeing a very strong freight market right now in the U.S.
Yeah.
Just potentially, could you comment on how you're kind of navigating these driver shortages right now? Maybe talk about the wage inflation you're seeing. We're hearing a lot of truckers just really struggling to get drivers-
Yes
...the wage inflation is quite hefty. could you just give some color on that?
Yes. Well, that's always the problem with the trucking industry is that a year ago we had tons of drivers and not so much in terms of freight. Now we have tons of freight and it's tough to find the drivers, right? For sure, we came out with a salary review for our drivers and that I think it took effect just lately because it's a problem. It's the same story all over again. Okay. Freight is plenty and shortage of drivers. This is what we're going through right now. It's the same story for us and the rest of the industry. It's always a battle.
What we try to do in a situation like that, our experience in Canada has always been when there's a shortage of driver, our approach in Canada, okay, over the last 15 - 20 years, what I said to my guys is, "Guys, how about if we buy a trucking company, okay, with 200 drivers?" you buy the company, you keep the good accounts and you get rid of the bad ones, and also that gives you a little bit better capacity. that is, in our mind, a solution that we may start to think about the U.S. domestic market. if I explain myself correctly, is you look at a 200-truck company like we just bought MCT a few months ago. It's about 200 trucks. I'm looking at the results of MCT, and it's very impressive what Greg and the team has done there.
Maybe there's another MCT that we could buy in the next three to six months to beef up our human capital, our driver fleet. In those small trucking company, they have some good accounts, but sometimes because they don't know what the market is, they have some not-so-good account. Our approach has always been, what you do is you just get rid of the ones that are not good, and then it leaves you capacity to service your good account in your existing business. I don't know if I'm explaining myself correctly. I don't know. Do you understand what I'm saying?
Yeah, no, that makes a lot of sense.
Okay.
I've looked at your strategy as well, so I appreciate the color.
Okay.
Your next question comes from line of Konark Gupta with Scotia Capital. Please go ahead.
Thanks, and good morning, Alain. How are you?
Good morning. I'm good. You?
Perfect. Great, thanks. Hope you're keeping safe and healthy. Just a few quick ones from me, Alain. On the wage subsidy, not sure if I heard you correctly. Are you expecting the government to extend the wage subsidy into 2021?
Well, no. What I'm saying is that our wage subsidy for our Q4 is going to be minimal for us, okay? Because our revenue is coming back and slowly. I was saying that in Q4, our wage subsidy is going to be minimal, just a few million dollars. For 2021, it's probably going to be zero for us.
I see. Makes sense. Thank you. on free cash flow guidance, so the minimum you announced today is CAD 600 million. Obviously, that implies relatively less cash generation in Q4. I'm curious as to if it's all pertaining to CapEx and tax payment, perhaps.
Yeah. Well, CapEx is going to be more important for us in Q4. Like I said, net CapEx is probably going to be like in the CAD 50 million-CAD 55 million, because we have to do some catch-up because of Q2 was light, and even Q3 was light. yes, you're right, we got some tax payment. like I said, this is a minimum of. It's like on the EPS. It's a minimum of CAD 4.00. What is it exactly? We don't know. But we say it's a minimum of CAD 4.00. could it be maybe it's CAD 4.50 . Not CAD 4.50 , but let's say CAD 4.05, CAD 4.15. We'll see. It's the same thing with the free cash. it's a minimum of CAD 6, CAD 600 million. it could be CAD 650 million or it could be CAD 675 million. It all depends, but at least this is a minimum.
Right. No, I understand that, totally. I think not a lot of discussion on Package and Courier, so just want to kind of dig in a few things there. There was, I think, a margin contraction in Q3 versus last year, despite volumes being almost flattish and pricing being quite positive. What led to that margin deterioration? Is there any room for margin improvement from where you are today?
Yeah. If you look at our adjusted EBITDA as percentage of revenue, there was no real margin issues. What is affecting us, like I said, is our ICS and our TFIS specialty P&C guys, which are mostly B2B. The revenue is still down, excuse me, year-over-year. ICS is down 5%, 6% and TFIS is down like 15%-20%. This is high-quality margin business that we're now. If you look globally, our P&C revenue is up a bit, because we replace those B2B revenue loss, because the customers are still not completely reopened, et c, for whatever reason, by B2C with our Canpar, Loomis operation.
If you look at most of the e-commerce business and you listen to what's going on, guys will always have pressure on the margin. We were able to do it at a kind of similar kind of margin like we used to do with our B2C. That's what we're saying. We're saying also that e-commerce in our Package and Courier business will keep on growing, and we're in business to protect our margin. We've got lots of demand. We could grow way more than what we're doing now, but we are controlling our growth through our capacity offering to our customers.
Right. No, that makes sense. Thanks. Last one from me before I turn it over. All the acquisitions you have closed or announced this year, they add up to almost call it a billion dollar in revenue. Maybe you optimize some of those businesses, right? What kind of margins do these businesses on a cumulative basis generate today, and where can they be in a year?
Yeah. Well, the biggest one is DLS that we're going to be closing in November. Yeah, DLS is $550 million , so if you convert that into Canadian dollars, it's about, let's say, CAD 700 million. That is a 5% bottom-line company today. We believe that 5% is okay, but it's only average. We're not in the business of average kind of return. We believe that over time, this 5% will become 6% and maybe 7% and 8%. It's still very early to say. We look at peers, and we have peers at 7% right now. One, we'll be talking with Tom, our leader there, say, "Hey, Tom, if the peers are at 7%, what can we do to get closer to 6% and then 7% and maybe get better than 7%?" It will take time. It's not going to happen overnight.
Now, the other small ones like Keith Hall, like Gusgo, like the DSN, all those small, the CCC that we bought in the U.S., the MCT, those guys are running some of them at 92% OR, some of them at 98% OR. The proof is in the pudding. If you look at our track record, I mean. Over time, these guys will get closer to, on a specialty TL, an 85% OR. It takes time. It takes time, absolutely. We don't give guidance for 2021 because our budget planning is not completely done for 2021. As soon as possible, we'll give guidance for the way we think 2021 is going to be. I could say my first feel about 2021 is we're going to do better than 2020, even without the subsidy.
That's perfect. That's all from me. Thanks so much, Alain, and let's stay safe.
Thank you.
Your next question comes from the line of Jack Atkins with Stephens. Please go ahead.
Hey, Alain. Good morning. Thanks for taking my question.
Morning, Jack.
just going back to the P&C business for a moment. We're certainly hearing about quite a bit of pricing power from the large U.S. parcel-
Yes
...parcel carriers.
Yes.
When you think about that, especially as we go into 2021 with B2B hopefully recovering back to more normalized levels.
Yes.
There's obviously going to be sustained B2C demand.
Yes.
How are you guys thinking about the pricing power in your business there and just normalizing for the subsidies, is it right to maybe think about a real step function change in profitability from a margin perspective in P&C next year?
Well, you're absolutely right, Jack. For sure, we're following in the steps of the big guys like the FedEx and the UPS. For sure. The only difference between us and them is that those guys were ahead of the game and us, we're following them. Us, it will take effect only in November, okay? Which is next week. Absolutely. I agree with you, B2B is slowly coming back, so that's going to help us in 2021. Now, are we going to be back to the same level as we were pre-COVID on B2B? Hmm. It's hard to say. Probably not. Okay. Also our B2C is also improving in terms of demand. The name of the game in transportation's always been density, okay? You have to build density and the more density you have.
On e-commerce, because one stop is one parcel at 99.9% of the time, what you have to do in order to get the density is to pick the ZIP code. Pick the right ZIP code. I'll give you an example. If you want to do B2C in the small northern town of Ontario, 20 mi north of Sudbury, well, you won't have a lot of density there, right? Our option to us has been, well, let's pick the right ZIP code, like the GTA, the Greater Toronto Area. The same thing with Vancouver. Same approach with Montreal, et cetera, et cetera. That is the way to create density in an environment where one stop is one parcel.
You say one stop is one parcel, that's true, but if you deliver into a downtown condo tower in Toronto, okay? Where there's about 300 apartment, well, maybe one stop is not going to be one parcel there. Maybe one stop is going to be 15 parcel because there's 300 apartment. A tower with 300 apartment in Sudbury, there's none, right? This is why our approach has been Vancouver, Calgary, Montreal, Toronto, Ottawa. Those city where we could do more density, okay, per stop, okay? Even in the e-commerce world.
Okay. That makes a lot of sense. Maybe just one quick last one from me. How are you thinking about your available capacity to be able to grow with the market there in 2021? Do you need to maybe add some capacity at the margin within the P&C segment?
Yes. What we're doing, Jack, is we're increasing our capacity at Loomis/ Canpar on a monthly basis. We are not going to be like Canada Post or others in Canada that are just growing out of control. Us, we are growing in control because we don't want to come up to our shoulders, okay? In Q1 or in Q2 next year and say, "Well, guys, we've grown P&C 15%, but the bottom line is down 20%." No. We don't want to do that. That's why us, we go ahead and we grow top and bottom line accordingly. That's the focus.
So, When I talk to Brian and his team, guys, absolutely. We got a full pipeline of customers that want to deal with us on e-commerce, but we got to go step- by- step. We got to pick and choose the right customer, the right ZIP code, and where it fits. We don't want to blow out on the top line and a disaster on the bottom line.
Okay. That makes a lot of sense in my book. Thanks again for the time.
Thank you, Jack.
Your next question comes from the line of David Ross with Stifel . Please go ahead.
Yes. Good morning, Alain. Happy Friday.
Thank you, David. Good morning.
When you talk about the logistics and last- mile division, specifically as you trade up in customer accounts to get more profitable business-
Yes
...where are those, you call them three point, four-point accounts, going? Are they able to find somebody else to haul it at those low prices, or are any of them coming back to you and paying the margin that it takes to run that business?
It's a mix, Dave. They say in transportation, there's a sucker born every minute, right? There's always someone stupid enough to say, "Oh, I'm going to do it for this kind of money." Our focus is that we've got so much capacity growth for our last mile in the U.S. with e-commerce at good margin. Why are we going to service this guy like pay less something? If this guy sells asset for pay less, for sure he wants to pay less for freight too, right? That's not my cup of tea.
Us, we've got so much demand right now in the U.S. with the e-commerce. What I'm saying to Kal and his team is that, "Guys, let's bring this new e-commerce business." As I said, we're just starting to do business with one customer that's going to be CAD 16 million for us on a yearly basis. Okay, take this guy on, but get rid of those 2%, 3% guys. Now, some of them are saying, "Oh, no, we can't find another sucker, okay, so we'll stay with you guys, but can we do it for 8% bottom line?" We say, "Okay, we'll live with that." The guy comes back to us with, "Can we do it for 3.5% ?" I say, "No. No. Get out.
Just quickly on the trucking side of things, given that it's tight, but also rates are up, do you expect that CFI and TCA to have any organic truck growth next year? is any of the growth in the Truckload segment in the U.S. likely to be M&A?
That's a tough question. For sure the freight is there, Dave. The freight is there. The issue that Greg and his team have is the same as everybody else has, is people, is driver, right? what do you do, okay, in a situation like that is, like I said to David and the team is, "Guys, can we find a company, okay, that's got asset, which is people, and they don't know what to do with it?" this is why we bought from this guy that was under the protection of the court, Comcar. We bought MCT from him. We bought CT from him, and we bought CCC Transportation from him. we got assets, people, okay? with that, we'll be in a position to create value to our shareholders.
As I was saying to Greg the other day, I say, "Greg, yes, we're busy. Okay. Yes, we're trying to hire driver, but is there a small company in your neighborhood? Is there something of size which for us is 200, 300, 400 trucks, that we could buy? Those guys are not bankrupt, but those guys are okay, but we can improve them through cost and through quality of revenue. Because it's very hard, because every transportation company is looking for driver. It takes time, and it costs money. What we're saying is, "Guys, how about if we buy a small" That's what I've done for 15, 20 years in Canada, is when the shortage was there, "Oh, let's buy a company." A company, it's not that expensive. If we could strike the right deal, okay, perfect. We beef up the team like that.
This has been like a little bit under the radar, Dave, is when we bought those three company from Comcar, okay, we didn't get a lot of good quality rates from customers, okay, because there's a reason those guys were bankrupt or under the protection of the court. We got the good asset, which is the people. Now we're working with customers and market, and we are improving. This is why we're saying MCT, what the guys have done there is fantastic. Grammer, CCC Transportation, CT is still an ongoing process, but it's going to be the same story. It's going to be hard to grow organically, okay, through trying to find the drivers. If we could find the right company, okay, small, that's how we get the drivers.
Makes sense. Thank you.
You're welcome, Dave.
Your next question comes from the line of Brian Ossenbeck with JP Morgan. Please go ahead.
Hey, good morning, Alain. Thank you for taking the question.
Morning, Brian.
Just a couple quick ones here. I understand you're using DLS, kind of as a foothold, similar blueprint you've done in the past to scale to new businesses in the U.S., get some market intelligence as well. Would you consider bolstering just the overall brokerage platform more so to the TL side, or are you primarily focused on LTL? We've typically seen a higher level of investment, especially from the technology side in brokerage just overall. Understand LTL probably doesn't have the same sort of drivers, competition behind it. How do you think of just the level of investment and what type of platform on the asset- light side that you're looking to do with DLS?
Well, DLS, if I listen to Tom and people that are talking to the guys, we could grow that fast. Our message to Tom and the team there is going to be, "Guys, focus number one, yeah, we want to grow the top line mostly on LTL, absolutely, but the most important thing to us, like I said on the call, is that we have to bring this 5% bottom line company closer to 6% and to 7% and maybe to 8%. To us, it's more important to grow the bottom line than to grow just the top line." We believe that, as an example, okay, when we talk to Tom, okay, at DLS, say, "Hey, Tom, do you guys focus on transborder LTL?" He said, "No."
Oh, wow. That's a new thing for you guys. That's something that Tom and your team have to focus, because the rates, the quality of the revenue on transborder freight between U.S. and Canada and U.S. and Mexico is even better than the U.S. domestic rates. Guys, that's a new area of focus of theirs, okay? That's one area that we think that Tom and his team could immediately start to focus on. We believe that DLS will grow the top line overseas, for example. We believe that DLS can grow the top line in concur with our truckload operation in the U.S. We could do probably better with that. Absolutely, that's the way to go for us.
It gets us market intelligence in the LTL market, which is something that, right now, today, we know the Canadian market really, really well. The U.S. one, we know it through our partners, but only on the transborder freight. When we look at the other LTL company, some guys are doing a fantastic job in the U.S., a fantastic job. There's way more consolidation that's been done in the U.S. on the LTL side than in Canada. In Canada, there's still way too many small players, not about making money.
Now, that's a big difference if you compare that with our truckload market. The truckload market in Canada is way more consolidated than the one in the U.S. The LTL is different. The LTL is a much better market in the U.S. than in Canada. This is why for us, when we look at DLS, it's fantastic in a sense that this is going to give us the opportunity to really understand what's going on there. What are the drivers? like I said earlier on the call, we've got CAD 1 billion to invest.
Okay. It could be a specialty TL. It could be another last mile. Maybe one day it could be an LTL company in the U.S. We don't know. We're working on something important in all those sectors, okay, but we'll see. At least on the specialty TL, we've done many small deals that now give us what the market is all about in the U.S. Okay. On the van side, through CFI, TCA, we have a good understanding of the market. Now on the LTL with DLS, over time, we'll get a great understanding of the market. Fantastic. We can start growing. Because in Canada, we're such a huge player that something of size, tough to do for us.
Just in terms of technology investment, we typically hear that with brokerages, LPO, maybe not as much. Is there anything you think you need to do just from a visibility perspective or anything on a tech investment side as you bring DLS on board?
Yes. When we talk to Tom, for sure. Right now, if I remember correctly, they're using MercuryGate and SAP. Us, we run Oracle, so first step for us is going to move, because we have a TSA agreement for a year. Step one is to move those guys from SAP to Oracle. TFI, we use Oracle. Then the next discussion is going to be around MercuryGate. Is that the right tool for growing this division, or do we have to do something else? I don't know. It's too early to say, but absolutely. That's one area that we want to invest, is tools for our people to do a better job.
Like I said, for our truckload guys, we're in the phase, we're looking at McLeod. We're doing the study right now, the first phase, and then probably the implementation will take effect in 2021. We need our people to have the right tools to be even more efficient. Same story with our LTL. Our LTLs, we're looking at TMW. If you look at our LTL operation of West, mostly run on TMW. In the East, we have Quik X now that's run TMW. We're going to be probably moving TST, CF on TMW in 2021. It's all about the tools. We have a team that is second to none in Canada, but we can always improve the results by giving those guys better tools, and that is the goal for us.
Understood. One last quick follow-up on the driver market and the more inclination to buy assets to get drivers. With MCT and CT, sounds like it's going pretty well so far. What's your ability to hang on to the people when they come over and the market is tight, and you need to perhaps cull some of the freight to bring up the profitability? Are you seeing historical levels of turnover and retention? Does that make you more or less confident to do more of these in the future?
Yeah. Not so much, Brian. I know it's always been an issue in the U.S. that you buy a company, and after a year, all the drivers are gone. Our approach has been quite good. If you would talk to Greg at MCT, he would tell you that, no, there was no real turnover. The same thing at CT with Steve and the team there. Not an issue. we don't come in there and say, "Well, you guys have to change. This is the recipe, and this is the way to go for the future." No, we don't do that. The way our approach is, "Hey, guys. Let's keep on doing what we're doing, and also we're working with the customer just to make sure that the rates are fair, that the rates are market.
If you look at the stuff that we bought from Comcar, I mean, the trucks were terrible in some of the divisions. We're investing in CapEx, we're buying the equipment so that the guys could be proud of their equipment and their company. We've been very successful in Canada. If you look at what we've done so far in the U.S., it's working well.
All right. Thanks for your time, Alain. Appreciate it.
Pleasure, Brian. Take care.
Your next question comes from the line of Cameron Doerksen with National Bank Financial. Please go ahead.
Thanks. Good morning.
Morning, Cameron.
Yeah. just a quick one for me, and I just want to just get your thoughts around M&A and the specialty truckload area in the U.S. You talked about that, but I'm just wondering if there's any sort of specific sub-segments of specialty TL that are more attractive. I guess, flatbed versus dry bulk versus liquids. Is there anything there that is better from an operational point of view or from a competitive landscape point of view that you would like to focus on one of those three?
Yeah. That's a very good question, Cameron. Flatbed, CT is a flatbed company, so it's really the first transaction that we do in the flatbed world. Okay, it's probably not going to be something for us important in 2021 in M&A. In terms of bulk, okay, with the stainless steel, everything that relates to chemicals or food. That's very important to us, so CCC is like that. When we bought Schilli, when we bought Aulick, absolutely, for us, really the tanker world is for us priority number one.
We are the largest player in Canada on the food-grade stuff, hauling whatever, wine, juice, sugar, et c. We believe that for us in the specialty TL, food-grade chemicals are on the bulk side, liquid and dry, okay? Not so much the cement. Cement is okay in some areas of North America. It's really the focus of ours. Flatbed, yes, we did CT, it was a good opportunity, and we'll keep on looking at that, but really our focus on the specialty is more in the tanker world.
Does that include petroleum products?
No. Petroleum is no, not for us.
Okay. No, you don't do much of that in Canada anyway, in specialty truckload, correct?
No. Very small. This came to us, it's a small operation we have in Montreal, about 15 trucks on the petroleum, and it's mostly for the ships. When they dock in Montreal, they need energy. Yeah, it's for the ship. It's a specialty petroleum business that we have that is very small, but absolutely not. If a company was up for sale, let's say with, I don't know, CAD 300 million revenue hauling petroleum products, no, not for us. We'll leave it to the other guys. Ours is more food, chemicals. Yes, we're in.
Okay. Makes sense. Thanks very much.
Thank you, Cameron.
Your next question comes from the line of Kevin Chiang with CIBC. Please go ahead.
Thanks for fitting me in here, Alain. I know it's been a long call. Maybe just a follow-up on the DLS acquisition. you mentioned you have a lot of cross-border partnerships, I think one of them with TST- CF is Saia. Just wondering if, as you think of DLS longer term, would you look to eventually in-house all your cross-border LTL, I guess your cross-border LTL network or eventually the partnership end or no? Okay.
No. Well, what we're saying to DLS is that the transborder business is huge, and you guys, you're doing a good job on the domestic side. Hey, how about if you start looking at the transborder business, which is something that those guys never really looked at. no, we're really proud of our partnership with Saia right now, and for sure, we would never do something like that. This would be very unprofessional on our part. no. The relationship we have with Saia is we want to protect that, and we want to grow it. it's got nothing to do with DLS. As a matter of fact, between you and me, Kevin, DLS deals with Saia anyway-
Okay
...on the domestic side. Yeah.
Perfect. Well, you, me, and everybody else on this call. Thank you for the clarification and congrats on a good quarter.
Thank you, Kevin.
Your next question comes from the line of Benoit Poirier with Desjardins. Please go ahead.
Hey, good morning, Alain.
Morning, Benoit.
congrats for the results and glad to see that Kal's efforts are paying off on U.S. last mile.
Yes.
Alain, looking at last mile, a great network in the U.S., there's been a lot of investment if we think that Shopify, ShipBob. Just wondering whether you see some opportunity to partner with some warehousing fulfillment companies as you don't want to go through real estate. I'm just wondering if you see some opportunities to partner up with some guys eventually.
Well, that's a good question, Benoit. So far, no, okay? We're having a lot of discussion. This is like the drone thing there. Are you guys thinking about that? Yes, we are. Okay? It's the same thing with this partnering with someone that's got the coverage, okay? Because like you said, we're not in the real estate business and we don't want to be in the real estate business, industrial real estate at all. Yes, but right now we have so much demand without going to that, okay, that right now Kal's team in the U.S. are really focused on just answering the demand that we're getting. It's unbelievable. Okay? We got to do it step -by- step, one step at a time. We're getting on board a CAD 16 million account, like I said earlier, right now. Okay, it's fine.
Okay, CAD 16 million in the U.S. is big, but it's not that big. We're testing also with another customer in California, right now or very soon. This could be just for California, another CAD 15 million account. Huge potential for us in the U.S. A year ago, Kal's mission in the U.S. was, guys, we cannot build if the foundation are not solid. Okay? Step one, let's make sure that our foundation in the U.S. is solid, which now, okay, we can say yes.
Get rid of all those 2% guys, okay? Step number two. Okay. Let's build a sales team that is North American. It's done with Dean. Okay, fine. Let's start growing organically with the e-commerce solution that we have, which is fantastic lean and mean solution that today we're growing big time in Canada, but not so much in the U.S. because we are replacing those 2% guys with better quality revenue, right? we've got our eyes full right now, Benoit.
Okay. That's great color . The other question I had was around the TL market. We are all aware about the positive market condition. Obviously-
Yeah
...the biggest question is around the duration of the cycle.
Yeah.
When we look at the Class 8 orders, yes, they pick up over the last three months, but we are still well below the historical average. I'm looking also at the implementation of the driver's license drug and alcohol clearing house-
Yeah
...that remove almost 30,000 drivers.
Yes.
We also have the ELD implementation that will be mandatory-
Yes
...in June 2021.
Yes.
Autonomous truck that will be upcoming.
Yes.
Do you see some long-term tailwind or structural changes that might make this positive cycle may be longer than usual, Alain?
I think so. Also the leadership in the truckload world in the U.S., like the good companies like Knight and Heartland and Werner and all those good companies in the U.S., they have a great influence now about, hey guys, this is how we could sustain this growth, okay? We're in business to serve customer, yes, but we're in business to make money as well. I think that market, the macro is changing to the advantage of the trucking company right now. Okay, fine. How long this is going to last? Maybe, like you said, longer than ever before because of the clearinghouse, because also it takes a lot of capital now too. Okay, interest rates are low, but still, it's not as easy to buy a truck like it was like 10 years ago, maybe.
Also customers are getting pressured to be more, I would say, professional in the sense that you can't give a load to a non-professional driver anymore. It looks bad. I think that you're right. Now things are changing, slowly changing to be more professional. Yeah, it may cost a little bit more money, but we are in business to create value for our shareholder, but we have to do it in a safe manner. Okay? We have to be safe on the road, okay, with drivers that are safe, right, as an industry. This is why I agree with you, probably a little bit more stronger tailwinds than we've ever seen before.
That's great color, Alain. Thanks very much for the time.
Pleasure, Benoit.
There are no further question at this time. I will turn the call back over to Alain for closing remarks.
Okay. Well, thank you very much, operator, for facilitating our Q&A session. I also want to thank everyone for spending time with us this morning. You can rest assured that everyone at TFI International will continue working hard for our shareholders, creating and unlocking value and returning excess capital whenever possible. I hope everyone stays safe, and I look forward to providing another update on our next call. In the meantime, please don't hesitate to reach out if you have any questions. Have a great day and a wonderful weekend, and thank you again.
This concludes today's conference call. You may now disconnect.