Good morning, ladies and gentlemen. Thank you for standing by. Welcome to TFI International's first 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. Instructions for entering the queue will be provided at that time. Before turning 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. Also, last year, the company adopted the new accounting standards under IFRS 16, and as a result, certain numbers are not directly compatible with past results. Lastly, I'd like to remind everyone that this conference call is being recorded on Wednesday, April 22nd, 2020.
I will now turn the call over to Alain Bédard, Chairman, President, and Chief Executive Officer of TFI International. Please go ahead, sir.
Well, thank you for the introduction, operator. I appreciate everyone joining us this morning as the world continues to navigate through these unprecedented times. Yesterday, after the close, we released our first-quarter results, and if you need a copy of the release, please visit our website. As we have previously communicated, our utmost priority since the start of the COVID-19 pandemic has been the health and well-being of our employees, our customers, and the communities we serve. In early March, our senior executive team came together to strategize and establish guidelines for our operations during the coronavirus and pandemic. Following their guidance, TFI International has been handling the ongoing crisis well, and I believe that we will emerge even stronger when economic conditions return to normal.
I know you are most interested in current condition and how we are responding, but I wanted to briefly discuss our accomplishment during the first quarter, starting with our listing in the New York Stock Exchange. This was a highly successful strategic accomplishment for TFI, but also a very natural step given how our company has rapidly grown over the years to serve all of North America. Our NYSE listing in February was well-received and the culmination of many years of successful growth and value creation at our company. The proceeds from the offering have provided an even stronger financial foundation for TFI to navigate what's ahead. Operationally, during the first quarter, our performance was solid despite the significant impact of COVID-19 beginning in March.
As I've often said, regardless of fluctuating business condition and the industry-wide capacity concerns that still exist during most of the quarter, we at TFI always focus on the basic fundamentals of the business. This consistent approach in how we optimize our free cash flow and earnings per share, which then used to expand our business and create long-term value shareholder. For example, we pursue an asset-light business model, we seek opportunities to enhance efficiencies, and we maintain a strong balance sheet. When it's strategic to do so, we also look at accretive acquisition opportunity, always in a highly disciplined manner. In early March, we completed the acquisition of R.R. Donnelley' s courier service business. This modest acquisition strategically adds critical mass and valuable new customers to our TForce Logistics same-day parcel delivery operation in the U.S.
In terms of our first quarter financial results, total revenue was up 1% compared to prior-year's first quarter at CAD 1.2 billion. More important to us, because of our emphasis on profitability, our operating income increased 13% to CAD 118 million, while our adjusted EPS on a diluted basis was up 8% to CAD 0.83. In addition, we generated net cash from operating activity of CAD 192 million, up a very robust 19% when compared to the year-ago figure. Before reviewing our balance sheet strength and the expenses reduction measure we have introduced, I want to share with you how each of our four business segments performed during the quarter and discuss how each has been affected by the COVID-19.
Although transportation and logistics was quickly deemed as an essential service, during the last two weeks of March, we did begin to feel the effect of governmental policies put in place to flatten the curve. Starting with P&C, this segment represents 13% of total revenue before fuel surcharge and saw revenue decline of 4% year-over-year in the March quarter. Operating income was CAD 16 million compared to CAD 21 million in the corresponding prior year quarter, and the segment operating margin was 11.1 relative to 14.3. Package and Courier, which is typically our highest margin business, has felt the largest impact from the COVID-19, with B2B activity slowing significantly. This segment has been a focal point of our cost reduction efforts that I'll review in a moment.
In year formal guidance, given COVID-19, we'll instead provide you a look at the year-over-year performance for each of our segments in both late March and early April. For our P&C, our revenue were running negative 28% versus the prior year during the last two weeks of March, and - 30% during the first two weeks of April. Turning to LTL, this segment represents 16% of total segment revenue before fuel surcharge. Revenue declined 14% year-over-year in March quarter. Our operating income was CAD 18 million compared to CAD 28 million in the prior year, primarily driven by a CAD 9 million gain on sales of real estate in Q1 of 2019, and our operating margin was 9.8% compared to 13.3%. For the LTL, our revenue were running negative 17% versus prior year during the last two weeks of March, and - 39% during the first two weeks of April.
Next up is our Truckload, our largest segment, representing 48% of total segment revenue before fuel surcharge. Truckload saw revenue grow 1% year-over-year in the March quarter. Our operating income was CAD 63 million, up 24% relative to CAD 51 million a year earlier, and our operating margin was 11.8%, was very solid, up 220 basis points compared to the prior first quarter of last year. For Truckload, our revenue was running -4% versus the prior year during the last two weeks of March, and -20% during the first two weeks of April, with both dry van and specialized operations impacted. Lastly, Logistics is our second-largest segment at 24% of total revenue before fuel surcharge, and saw revenue grow 20% year-over-year in the March quarter. Our operating income jumped 71% to CAD 26 million from CAD 15 million a year earlier, reflecting a 290 basis points increase in our margin to 9.7%.
Approximately 1/2 of this increase in Logistics operating income relates to the bargain purchase price gain recognized in association with the acquisition of the Courier service business of R.R. Donnelley, with the rest from operating improvements and M&A. Logistics has received a boost in recent weeks with both the e-commerce and medical end markets doing very well, partially offset by weakness in B2B. For Logistics, our revenue were running positive 39% versus the prior year during the last two weeks of March and positive 12% during the first two weeks of April. Next, I'll discuss our balance sheet, which currently reflects the lowest leverage our company has in many years. Further, we ended the March quarter with about CAD 130 million in cash and equivalent, CAD 830 million still available on our revolving credit facility, and no debt maturities until CAD 200 million comes due in June of 2021.
During the COVID-19 pandemic, our balance sheet has continued to serve as a source of strength for TFI International. Shifting gears, I want to spend a moment on our expense reduction effort. While we quickly moved to reduce operating costs and CapEx in March, we've approached all decisions with an eye towards strategically enabling TFI to quickly snap back and emerge even stronger once the operating environment improves. For now, everyone within the TFI organization is currently pitching in, and I'm very grateful for the pride and professionalism of our people as shown doing everything they can to help our customers and help our company through this stretch. Some of the many steps we've taken include the following. First, we've reduced wages for executives anywhere from 5% to as much as 15% for all C-level officers and all executives, VP across our organization.
Second, for more than 1,000 full-time employees, we've reduced their work week to four days while helping them through this time by maintaining their pay at 85% of base salary, which amounts to an increase in their per day wage. Third, many other employees were subject to reduction in force, which we hope will prove temporary. For these individuals, we have not only continued to provide benefits, but we also instituted a base salary recovery program to support them during this period of temporary unemployment. Fourth, we suspend all CapEx to which we had not committed, and we plan to revisit these potential outlays as condition permit. Again, these are just a few examples of the many strategies we have implemented.
In addition, I should mention that we have provided full support to our operating companies so that they can protect the health and safety of all employees in full accordance with local requirements. At this point, 70% of our head office employees are working at home. We have taken additional precautions within our offices. These include the installation of sanitizer dispensers, 6 ft distancing policies, limiting in-person meetings to three people, restricting non-essential visitors from offices, a visitor log and mandatory questionnaire, and more thorough cleaning of common areas. Before opening for Q&A, I'll mention that our overall capital allocation plan, despite our current strategic delays in CapEx, is unchanged. We invest capital where we see the best risk-adjusted return, while paying our quarterly dividend and continuing our track record of identifying attractive acquisition opportunities. We approach all capital allocation in a highly disciplined manner, as we always have.
As you've seen in our results over the years, we look to generate not just growth, but profitable growth. Our ultimate goal at TFI is to create and unlock shareholder value, returning excess capital to our shareholders whenever possible. I want to thank all the dedicated and hardworking people of TFI, who have demonstrated pride in the work that they do each and every day during the COVID-19 outbreak. I also want to welcome aboard all our new investors that took part in our recent offering on the New York Stock Exchange, and we assure you that generating long-term shareholder value will always be the key focus of TFI International. With that, operator, I'd like to take questions from the audience. If you could please open the lines.
Certainly. At this time, if you'd like to ask a question by phone, please press star one on your telephone keypad. To withdraw your question, press the pound key. Jason Seidl with Cowen, your line is open.
Thanks, operator, and good morning, Alain and team. Alain, I wanted to start off asking a question about the I know TFI itself doesn't have a large exposure to energy. However, as the decline we've seen in oil prices starts to flow through and hit the Canadian economy, that's likely going to free up a lot of people used to hauling energy and energy-related goods. Is that going to throw a lot of capacity out into the marketplace in trucking?
Well, Jason, our exposure to energy is really, really small. We have a small operation that's left for us in Texas, in the Odessa market, this is really small revenue for us. We're still very present in Alberta with our LTL and to a certain degree in our specialty TL. Really, the service that we provide with the energy sector in Alberta or Saskatchewan is very, very limited. I would say that today energy is very small component of TFI's revenue. For sure, if you look at Alberta, the province has been slapped with the double whammy. It's got the oil situation, it also has the virus like everybody else in the world. Our LTL has been affected probably the same as the rest of Canada.
If we look at our specialty Truckload, it's been affected a little bit more than the average that we see on the East Coast, Ontario, Quebec.
Okay. Speaking about the LTL, obviously there's a lot of operational leverage in that model. Over the past couple of years, TFI has really taken the approach to sort of streamline its network, get it as slim as possible. Is there anything left to do? Are there any other small terminals to close down, or is it sort of just you're at where you're at, and you're going to ride out the storm here?
You know what, Jason? That's a very good question, absolutely. Two years ago, we've combined TST Overland with Kingsway in the East, okay? That was a major transaction for us, and it saved us a lot of dollars. You have to understand that on the Canadian side, the LTL is shrinking every week, every month because of the e-commerce, and now the virus is just one more, okay, that's just not helping us. What we are planning, and this is going to be taking effect at the end of April, is that we're also now doing the combination of TST Overland, okay, with our CF operation. Two great names in Canada. CF was only a regional player, covering Western Canada, and TST Overland is a national carrier.
As of the end of April, okay, that's one more move that we're doing to streamline and be more efficient. I was just looking at the equipment. We're going to shed about 200 to 300 piece of equipment. In terms of headcounts, the headcounts will be down significantly because of that. We're getting ready, because this LTL keeps on shrinking. There's no other options for us in Canada, that we have to adjust to the volume. Now, for sure, as soon as we can, okay, we've got some targets in mind. We're also talking to some people. A lot of people in the LTL business in Canada are not making money, because they have the same problem as us, is that volume just keeps on coming down, and they don't know what to do.
Us, we have a plan. Our plan is always put in place, and we adjust and we cut, and we have to live with the market condition. Our focus is always about serving customers, but we have to make money.
Yeah. That makes sense, Alain. Real quick before I turn it over to somebody else, what's the average age of your truckload fleet now in the U.S.?
In the U.S., I would say at the end of March, we're just under two years of age. This is why what we did on the CapEx side on the U.S., talking with Greg and the team there, and David, is we said, "Guys, our fleet is so new that we can afford" What we've done in the U.S., we've canceled the CapEx for everything that was not committed. Probably what we'll see is we still have some CapEx coming in for USTL in Q2, in terms of trucks and trailers. After Q2, everything has been canceled. This means, if I remember correctly, about CAD 60 million net CapEx that will not be done in 2020 for USTL. Canadian dollars, though. You put that in U.S., it's about, let's say $40, $45.
Okay, perfect. Listen, Alain, I appreciate the time, as always. Be safe out there.
Thank you. Likewise. Thank you, Jason.
Mona Nazir with Laurentian Bank, your line is open.
Good morning, and thank you for taking my questions, and congrats on the quarter in a challenging environment.
Thank you, Mona.
My first question is just clarification. For LTL, did you say the last two weeks of March was down 17%?
You know what? Let me just check, because I think so.
Okay.
Yes. 17% down. Yeah.
The first two weeks of April? Sorry.
39% down.
39%?
what I have to add on that, Mona, is what we've seen, really, if I look at my first week of April, versus my second week of April, now I've got my third week of April, because April for us is five weeks. When I look at that, I see a trend that this volume was really down the first week, and a little bit less in the second week, a little bit less in the third week. I think that right now, until the government decides to reopen businesses, we're probably just improving a little bit week by week. The same thing with our P&C. P&C, the first week, it was a disaster. I mean, bang, whoa. Then it started to drop even more. The last two weeks of March, because they announced the closing, we went down.
The first week of April, again, even down more. The second week of April, back up a bit. The third week of April, we're starting to see up a little bit. This is why, if I look at my P&C as an example, two weeks ago, for the first two weeks, I was down, like, 40%. Now, after three weeks, I'm down only 30% year-over-year.
Yeah, that's helpful, because I was just looking, even at the quarter, LTL shipments were down almost 17% in the quarter. Just given that margins improved significantly, I was just wondering if it was safe to assume that the majority of that decline was driven by a reduction in lower margin business. If that, in fact, is the case.
Some of that is true. Some of that, Mona, is true. Yeah.
Okay. If we're just adding up the steps that you've taken in regard to reducing executive compensation, reducing office staff to four days a week, furloughing some P&C staff to preserve capital, I'm just wondering, combined, what kind of an impact can all of these items have on OpEx?
Yeah. Well, that's a very good question. You know what? This also depends on the level of volume that we have. One thing I could say is that we've revised I am monitoring our P&C by the day now. The same thing with LTL, the same thing with our U.S. TL. I used to monitor by the week, now we're by the day. What I could answer on that is that, a lot of people were scared that TFI would lose money even in Q2. No, we're not going to lose money in Q2, that's for sure. I can't give any guidance, but what I could say is that all the steps that could have been done, and we're following information and tools and data by the day in every business that we had a huge drop, like our P&C and our LTL.
My U.S. LTL, the reason we're checking that by the day now is because that's the most capital-intensive business we have, right? My Canadian truckload or specialty truckload is not as capital-intensive. Yes, my van division has been affected. My specialty truckload, as an example, the construction in Quebec has been shut down. The mining has been shut down. Now they're starting to reopen that, and already we're starting to see some improvement in our specialty truckload and Canadian truckload. Really our focus right now is really our P&C, our LTL, and our U.S. TL that we monitor by the day. Now, to answer your original question, what's the quantum of all that? I can't really answer that, Mona. I don't know the numbers. What I could tell you is that we are monitoring that by the day.
We're comparing year-over-year, day-over-day, comparing, let's say, for instance, our labor cost used to be 12%. Are we at 13%? Are we at 11%? Where are we at? We're doing that for all, like I said, LTL, P&C, and U.S. TL.
Okay, perfect. Just lastly from me, I understand that M&A may be temporarily on hold, just given due diligence is challenging on third parties at this time, and you want to preserve capital. When the M&A tap turns back on, I'm just wondering, what can investors expect? Are you going to be sticking to your current verticals? I know you touched on LTL, is there any scenarios where you would look outside of current activities? I know in the past, for example, you said that your waste business was a gem.
Yeah, absolutely. You see, Mona, the minute we could do M&A again. May be in Q3, depends on what April and May looks like. We will start really with some small tuck-in deals that we've been working on for the last few months, and we put on hold. That's how we're going to start M&A, and it's going to be either in the U.S. or in Canada. These will be small deals, nothing major. We were working on significant size deals prior to this virus thing there, but we're not going to do any major deals in 2020. It's too risky. Not knowing how long this virus is going to be with us for. Maybe it's a year, maybe it's 18 months, nobody knows. This is why anything of size won't happen probably until 2021.
I would tend to say that small tuck-ins that we could do in Ontario, for instance, I think that there's a probability that we could do that in Q3 or in Q4 of 2020. We have ample of files that we're looking at right now. Don't forget, if we are in a difficult position because revenue just disappeared because of this virus, everybody else in the same boat. We're all on the same ship. The market is difficult for everyone. Now, the strong like TFI, that's got the balance sheet, that's got the team, because don't forget, you need the team to do all this M&A. You need the solid operational team to take over a company and just integrate like we're doing in the U.S. right now with Donnelley.
Sure, the guys will say, "Well, Alain, you got CAD 5 million of profit in Q1 that comes from that deal." Yeah, because we buy at the right price. What's the problem with that? You'll see Donnelley as an example. It will help us grow our last-mile logistics business in the U.S. with all the nice vertical like healthcare, for instance, or e-commerce.
Thank you. That's very helpful.
Pleasure, Mona.
Jack Atkins with Stephens, your line is open.
Hey, Alain, good morning. Thanks so much for taking my questions. I really appreciate it.
Pleasure, Jack.
I guess just to start off here with a couple of higher-level questions. I know you've seen a lot over the years. I know you're a young man, but you've seen a lot over the years. I guess I'd be curious to get your take on how you think what we're seeing right now from this COVID-19 pandemic, how does that structurally change the transportation markets in the U.S. and Canada, as we look out over the next couple of years, and how do you want to position TFI to really capitalize on that?
Well, that's a very good question. Jack, we've learned from the lesson of 2008, 2009 us at TFI. If you go back and look 2008, our revenue dropped about 20%, our EBITDA dropped about the same, but we were way more capital-intensive then, than we are today. Our balance sheet was not as strong as what it is today. That's one of the things that we've learned from that crisis then. If you look at this crisis now, and you look at that and you say, "Well, Jesus Christ, this is really the first time that we have shut down everything just overnight." The government decided that for health reason, well, this has got to shut down. Boom, goodbye. Our B2B has been affected.
What we learned from that, if we look in the future, I think that the consumer was slowly moving towards more and more e-commerce. Slowly. I think that this is going to be a catalyst for those guys to No, not as much slowly, but probably a little bit faster into more and more of this e-commerce thing because some of the consumer are getting used to the e-commerce. Whereby, let's say just a few months ago, these guys said, "Well, e-commerce, I don't really like that. I'm just going to go shopping in the mall." I think that this is going to be really a catalyst to have even more and more e-commerce down the road, faster than it would've been without the virus.
I think that the solution that we have us at TFI is unique because if you look at Canada, we offer the next day solution with the Canpar/Loomis operation, which competes with UPS or FedEx or Purol in Canada. In the U.S., we don't have this solution, but we have our Logistics and Last Mile solution, which is the same as the big e-tailer. Everybody knows about Amazon. We have exactly the same product. This is like a diamond in the rough within the TFI family, and I think that people are just starting to understand. Once they start understanding that, wow, this is a real diamond. Those guys can compete easily. Well, for sure, we service Amazon as a customer, although small, but we have the same service that we can offer to other customers, which we're doing and which we're growing.
Going back to your question, what do I see from this is that e-commerce will keep on growing even faster, and that's going to help our Last Mile and Logistics. To me, this is the first thing I see when I look at this. The other thing also is that the fact that TFI's always been low in capital intensity. If you look at the global TFI today, we're between 4% and 5% capital intensity. Why? Because our focus has always been to generate cash. We want to generate cash. Why? Because we want to buy back stock, we want to pay dividend to our shareholders, we want to do M&A, et cetera. Without that free cash flow generation, you can't do that. Yes, some trucking companies have no debt, but they have no free cash flow.
For sure they can't afford to have debt or they can't pay dividend. Our approach us at TFI has always been, okay, try to do more with less. If you look at our U.S. TL operation, about two years ago, Greg Orr came to us and say, "Hey, we have to start a logistics operation within TFI." Greg makes a lot of sense. We've invested in that. We've also focused lately even more into trying to grow our owner-operators fleet in the U.S. It's always been a problem to grow that. Lately, Greg and his team has been very successful. We're adding owner-operators, so that will reduce our capital intensity, hopefully for the next years to come. This is a really good question, Jack, and I think that this is what's so important about understanding where TFI is today and where can it be tomorrow.
Okay. This e-commerce solution that we have within TFI is like one of the best-kept secrets in North America.
Well, that's great to hear. I guess just to follow up on that. You guys have a great track record of free cash flow generation. That continued in the first quarter. We've been hearing some anecdotes over the last couple of months that shippers have been trying to push back on payment terms as they look to sort of hold onto cash. Everyone's trying to hold onto cash as much as they possibly can. Have you guys seen that? How are you responding to that? How are you thinking about free cash flow generation this year more broadly?
Yeah, well, for sure there is some customers that always try to hide and give you the excuse just to delay their payment. Us, we are very strong on that. I will give you an example. There is a huge mining company in Canada that those guys had all kinds of issues with their IT system. That is always a good excuse. We say, "Guys, we are not a bank. We are not a bank, so we cannot support you guys." It is a huge corporation and an international corporation. Finally we were able to get payment because we said, "Guys, if we do not get the money, you guys do not get the trucks." That has always been our approach, Jack. When you do a transaction with a customer, we agree on price, we agree on service, but we also agree on payment terms, and everything in that agreement has to be respected.
Makes total sense. Well, thanks again for the time.
It's a pleasure, Jack. Take care.
Scott Group with Wolfe Research, your line is open.
Hey, morning. Thanks for the time, guys.
Pleasure.
Can I just clarify the April updates that you gave that were helpful, was that volume or revenue? If that's revenue, is that with or without fuel?
No, it's excluding fuel, and this is revenue.
Okay. Is there any way on the P&C that's I think down 30% in April, can you just help us think about what trends you're seeing specifically B2B versus B2C? Maybe just remind us of the mix of B2B versus B2C for you there, anything that's notably different between the package side and the courier side.
Yeah. If you look at our P&C, you could split that in two. You got Loomis and Canpar, okay, and you got our specialty kind of P&C, which is ICS and TFIS. If you look at TFIS and ICS, those guys are a niche B2B carrier. Those guys are way more affected than the Canpar, Loomis. Why? Because Canpar, Loomis has also B2B, but also has a significant content of e-commerce. Whereas if you look at TFIS and ICS, they're basically very little e-commerce in those two divisions because these are specialty carriers. Like as an example, ICS is very heavy with the insurance world, very heavy with the optical world, dental and all that. All the dentists, all the optical boutiques are closed down. ICS is just dead. Okay, so that's the big difference between the two.
You'll see if you say 30% down in early April, well, that means that those specialty guys are closer to 50% down, okay, and the other guys are closer to 20% down because they have more e-commerce and less B2B exposure than the other one.
Is it fair to think within the down 30% that the B2B maybe to your point, is down in half and the B2C or the e-commerce is-
Oh, absolutely.
Okay.
Yes, sir. Absolutely. With all these shut down, think about all the malls. They're shut down completely. All your customers are closed. That's why our B2B has been affected so badly in our niche carrier like ICS and TFIS.
What are the implications on margins for that segment? I know you said, "Hey, don't worry. We're going to make money this quarter." Can the P&C segment make money in this kind of environment, or is there any way to think about margins in that segment right now?
When we look at our forecasts, our re-forecasts and our re-re-forecasts is we're not losing money in any of our sectors, okay? In Q2, based on what we know after three weeks of operation in April. We're not going to be an 18-point EBIT, okay, P&C in Q2. It's impossible. We're not going to lose money.
Anything more directionally that you think is worth thinking about? Is this a mid-single digit kind of business right now for the time being, or could it be a little bit better than that?
Yeah, I would say so. It all depends based on what we know so far, but also when I look at the trend, and that's what I was saying earlier, okay, there's a little bit of improvement in our trend. We really took a major hit in the first two weeks of April. It was really a, "Wow, where are we going with that?" Now I think we found some kind of stability, okay, and slowly we're picking up again. If you look at the virus in Canada, Quebec has been affected so badly. It's terrible. Then you've got Ontario. If you look at the western provinces, we believe that those provinces will reopen faster than, let's say, Quebec. Quebec will probably very slow because they got so much virus case. They have more than 50% of the cases in Canada right now.
Quebec will be slow. The West will probably be the first areas in the Maritimes to reopen slowly. Based on what we know, okay, and not forecasting a lot of improvement in Q2, in May or in June, P&C will be something in the 3%-5%, probably. This is not a guidance, this is an opinion.
No, I get that. Just last thing, you gave us the Truckload sort of CapEx, how much it is cut. In aggregate now, what is the CapEx budget or plan for the year?
Net CapEx is probably going to flow around between CAD 80 million-CAD 100 million. Net CapEx, net of disposals, which is about 1/2 of what we normally do.
Yep. Okay. All right. Thank you for the time, guys. Appreciate it.
Pleasure.
Tom Wadewitz with UBS, your line is open.
Yes, good morning.
Morning, Tom.
Yeah, good morning. Following a little bit along the lines of the questions and topic you just had, what is the B2C, B2B mix in the P&C business? As you look at that and your comments on acceleration in e-commerce, do you say, "Well, maybe before we wanted to be stronger on B2B, but we kind of review the structure and change the strategy a bit in terms of how we look at B2C, even if it's a lower margin business than core B2B?
That's a very good question because let me explain to you our philosophy. Our philosophy is our next day service, okay, which is Canpar, Loomis, TFIS, ICS which compete with UPS, FedEx and Purolator in Canada. Our focus is, yes, we'll do e-commerce, but not so much. Where it makes sense and where our margin could be as good as the rest of our business. Why? Us, we have a solution that nobody has, which is our Logistics and Last Mile. This is really the best tool. This is really the efficient way in huge high density areas like, let's say, in Canada, Toronto, Montreal, et cetera, or New York, Chicago in the U.S., L.A., Houston, Dallas. Our solution is really the same kind of solution that the big e-commerce guys is using to service its customer.
Way more efficient, way more effective, less capital-intensive because we don't have the conveyors. We don't need those conveyors because everything is done, the sorting is all done at the customer level. That's why, going back to your question, our P&C business, the focus will remain on B2B. I agree with you that maybe B2B will get down, the revenue will slowly get down because of this move of e-commerce. We're also replacing some of that business with e-commerce that makes sense, okay, that we could do in our next day service. What we're trying to explain to our customers is that, guys, we offer another solution, which is our logistics and Last Mile, okay, which is really good, but you need, like the other guys, like Amazon, you need warehouses. If you don't have warehouses, it's very difficult to do, okay, what Amazon is doing. Right?
It sounds like it might be fair to say that if there's a big acceleration in B2C and e-commerce and it's more on a structural basis, that's bad news for P&C to some extent, but it's really good news for your Last Mile business. Is that fair that it's kind of partial?
Yes.
Yeah. Okay.
Yeah, this is exactly what I'm trying to say, okay. When I talk to Cal, our EVP in charge of our Logistics and La st Mile, I said, "Kal, you got a diamond. You've got a diamond in the rough." The only problem is that people still don't understand what we can offer. They understand the Amazon solution, okay. Because Amazon is fully integrated now from warehousing to distribution. Us, we're not in the warehousing business. We're just talking to some customers and say, "Guys, if you have this kind of distribution network, we could help you on the e-commerce." It will take time. We have this solution that is, it's unbelievable what we could do with that. It's just, it will take more time. The e-commerce, because of this virus, will accelerate. Absolutely.
It will be to the detriment to the B2B in the P&C side for us or for Purolator, for probably FedEx and UPS. We'll see that soon. It's probably going to be some kind of permanent kind of impairment of the B2B because of what's going on.
Right. Okay. That's great. That makes a lot of sense. One other question for you. Your strategy is differentiated in terms of the aggressive use of independent contractors and obviously that's a component of your focus on cash. I know there's some cyclical aspect to attracting ICs, and you can probably attract, whether it's drivers or ICs or whatever, I would think easier in this environment. Do you look to make potentially structural changes on the mix? Do you say, well, this is an opportunity if we were I'm not sure of the number in a specific business, but if we were 40% IC, 60% company driver, now we want to go to 50/50, or we want to flip it and go 60/40.
Do you look at the market and just say, "Hey, we like our mix of IC and company driver, and this is just cyclical stuff that doesn't change the kind of structural, kind of IC versus company driver mix?
Yeah, a very good question. You got to look at it differently, either if it's a truckload operation or if it's a P&C and LTL operation. P&C and LTL operation, it's a model that's very easy to run with owner-operator. Why? Because it's easier. Okay, easy to find, the guys are happy, they have their own business.
Yeah.
That's why if you look at our P&C and LTL, our mix is very, very high on the owner-operator model. On the Truckload side, it's more difficult, even in the U.S., it's even more difficult, okay? A lot of those guys don't make any money because there's, in the U.S., a lot of pressure on rates with customers. The customers are smart. They feel that there's an overcapacity because the truckers bought so many trucks in 2018 because they thought that this would be a fantastic year for the next 15 years, they bought thousands of trucks, now the rates are the , those poor owner-operators are just dying. To answer your question, truckload for us, a mix that makes sense is 65% asset and 35% non-asset, which would be either logistics or owner-operator.
If you look at our P&C and LTL, it's completely the opposite. There you will see us running at 30% asset and 70% non-asset.
That's the mix, but you're saying the mix doesn't necessarily change for you as a result of the current condition.
No.
Right. Okay. Thank you for the time.
Pleasure.
Ken Hoexter with Bank of America, your line is open.
Hey, good morning, Alain and Dave.
Morning, Ken.
Just wanted to follow up on, I guess you have great insight given your multiple segments, and I get what you're saying on the down 30, down 50, kind of different depending on the segments. Where do you look first, given your multiple views into the market, your touch points, to see the trends as you prepare for the reopening? Where do you expect to see the signals first within your different endpoints?
I think that where we've been affected the most, okay, which is our P&C and LTL, what we're waiting the signal is that, at one point, they reopen the shops, the malls, the retail business. This is really killing our B2B business. That's why we're monitoring that by the day. About three weeks ago, I said when I looked at the sharp decline in our revenue in our P&C, I said, "Guys, you guys monitor that by the day, but us, it's by the week at head office. It's got to be done by the day." We monitor the labor cost, the owner operator costs, the staff costs and all that. For us, the other thing also that we've implemented is a kind of bring back the employees with a support deal.
If an employee has been laid off, when he comes back, let's say he comes back after 12 weeks, so we have a program in place that he's got an incentive to come back. If I remember correctly, the first four weeks we're supporting this guy with CAD 100 a week. After four weeks, we go up to CAD 125 for the next four weeks. Then we go to CAD 150 a week. Let's say the guy's been away for 10 weeks, so he's got an incentive to come back to work when we call him back. He's ready to come back because over and above that he's got his job back, he's also have a kind of a bonus to come back to and pay all the bills that he's been stuck with because of this pandemic.
Great. Then you gave some thoughts on your margin outlook for the P&C. You just gave the mix change on the truckload side, given trying to stay asset-light. What kind of margins do you anticipate seeing on the Truckload side?
It depends. If you look at our U.S. TL, if we look at our reforecast for Q2, like I said, we have no sector that's going to be losing money. Are we going to be able to run a 94, 95 OR? Far, what we see is our OR in Q1 has been deteriorated by about 100 basis point. If you look at, I think we did 93.4, and the year before we did 92.4. 100 basis point deterioration year-over-year. Can we think that in Q2, can we see a 500 basis point deterioration? Maybe. What I've seen so far from the other USTL is that in Q1, some of them have deterioration of 150 basis point or even more. Not a lot have been coming out so far. The target is always not to lose money, and this is an utmost priority.
It's very early in the game because we have only three weeks experience in April. What I could tell you is that if we look at our model, none of our division are losing money, and even our U.S. TL is not losing money based on what we could see. We've lost some customers because of closure, like PACCAR, for instance. We also have customers that are doing three or four times more like Clorox. Our revenue is down, yes. It's more down at TCA than CFI because of our dedicated business. For instance, Mercedes-Benz has been shut down, but they are reopening. All in all, that's why we're not giving guidance because it's such an unknown environment.
The only thing I could say is that the guys are working really hard, and we're not going to be losing money in Q2 or any other quarters, in all of our division, in each and every one of them.
Appreciate that. Just real quick, I guess, to wrap up. Are you seeing any differences in your Canada operations versus U.S. in general in terms of how you're handling the impacts?
Well, when we look at the Canadian operation in our Truckload sector, where we're really affected is our flatbed because of the steel. If car plants remain shut down for months and months because there's no demand for cars, in Canada, it's really our flatbed business that's been affected. We don't have any flatbed business in the U.S., so we're not in that business. The rest of our business in Canada, it's down, but it's not down as much as our flatbed business.
All right. Appreciate the time. Thanks. Bye.
Pleasure again.
Konark Gupta with Scotiabank. Your line is open.
Good morning, Alain, and thanks for taking my question.
Morning.
I hope you're keeping safe and healthy there.
Yes, we are. Thank you.
That's very good to hear. Yeah. Just wanted to ask you first on pricing. It seems like, as you noted in the financials, the pricing turned positive in Q1 and in most of the segments from negative in Q4. First, what caused the pricing to turn like that, and then how do you see the pricing trends in the first two weeks of April or three weeks of April?
Yeah. Well, if you think about our pricing with our LTL, for example. Our pricing improved, it's not because the market has improved in terms of pricing. It's just because we're getting rid all the time of low margin accounts. This is why by getting rid of all those guys that don't want to pay the fair price, it improves our average revenue. LTL, it's not a pricing power that we have, it's just that we're cleaning up again, and we always find those situations whereby a customer try to take advantage of a trucking company. If you look at our P&C, okay, it's more like the average weight or the coincidence of delivery. Rates are fairly stable. U.S. TL are a little bit under pressure, not so much, okay.
What we see probably in Q2 is that we'll have probably a little bit of pressure on the rates in the U.S., not so much in Canada so far. The way we're going to win this war with this virus, it's about cost and it's about volume. The focus has always been at TFI that we service customer where we can make money. Get rid of all those guys where you lose money or you make two points. This is why we're so light in assets, and this is why return on invested capital is so good, is because we focus on that all the time. The problem is when you have B2B shut down like 50%, you lose business, you lose volume that are highly profitable, and there's nothing you can do about that except adjusting your cost base.
Hopefully, when those guys reopen within the next few months, we'll be back on business. Like I said earlier, on the P&C side, medium, long- term, we'll probably see either flat or some reduced volume. That will be for TFI to the advantage of our solution, which is our Last Mile in Logistics. Already we see that. Our Logistics division in Canada is up. If you look at our revenue so far in Q2, we're up. Okay, that's basically the only division that we're up year-over-year. Exclude any M&A.
That makes sense. I see. Thanks for that. I think you obviously gave us a pretty good color on how the revenue run rates have trended in March and April. Thanks for that. Just wanted to understand, on the Truckload and Logistics side, you noted the numbers on revenue being down 20% in April, on Logistics up 12% in April. Just want to clarify, is that apples to apples? Normalizing for acquisitions because there were some acquisitions. Okay. Yep.
Yes.
They include acquisitions this year as well as last year, right?
Yeah.
Okay. Makes sense. The Logistics, is it the e-commerce that is what is driving the revenue up significantly in March and April?
Yeah. Well, let me get that again. Okay, if you look at our Logistics year-over-year, okay, in Q1 versus, there was no real big M&A. If you look at the first two weeks, okay, R.R. Donnelley is in there.
Okay. I see.
Right. Donnelley, if I remember correctly, I think we closed that deal mid-March, that's why we still show some improvement. Don't forget, like I said, our logistics in Canada is up organically. Okay? There's no M&A there. Up double-digit in Canada. In the U.S., we were down organically. If you exclude Donnelley. Why? Because we were really badly affected in New York. New York's a big market for us. Detroit, Boston, Chicago. We lose there, we gain on the other side. We gain a little bit on the e-commerce in the U.S. We gain a little bit on the West Coast, Texas. We've also been affected in South Florida.
Our forecast, as an example, in our Logistics and Last Mile in Q2 in the U.S., excluding M&A, is that we're going to be down probably 10% because of New York and Chicago and Detroit and all that.
Okay. No, that's great color. In the press release, you mentioned since COVID began, you saw good demand for household goods, obviously healthcare, e-commerce. Can you remind us, obviously we talked extensively about P&C here, but can you talk about exposure to household goods, healthcare, e-commerce, for other segments like LTL, TL, or Last Mile or Logistics? What kind of exposure you have there, then how do you compare those trends in those segments versus B2B?
Okay. If you look at our Logistics sector in the U.S., we're really, really big on healthcare. It's probably 25% of our revenue today. We've got really some good exposure in the U.S. Last Mile with that. In our P&C in Canada, it's mostly our specialty, like an ICS because of its optical exposure, although it's healthcare, but all the shops are closed, all the stores are closed, so it's not helping me at all. LTL is small. LTL is mostly retail. As you look at my pie chart, retail is number one, and we used to be big in industrial LTL in Canada, but they shut down all the plants over the last 10, 15 years. We're mostly a retail carrier like everybody else now in Canada on the LTL side.
Okay, makes sense. Lastly, coming out of this downturn, Alain, do you see an opportunity to optimize your portfolio like you did in 2008 and 2009, in the way of any divestitures or any acquisitions focused on particular areas you would be looking at?
Oh, absolutely. The way I see 2020 is like, okay, it's a test. It's a test. For sure it's turning some lights on. Hopefully, it will help us sell even more of our Logistics and Last Mile to our customers so that we can offer them a great service at a very, very attractive price. We look at the LTL in Canada, and it's a shrinking business. I think that we have to do more M&A in Canada on the LTL side to help us in the future. I think that there's lots of opportunity in Canada. Maybe there will be some opportunity in the U.S. We'll have to see that down the road. We run a partnership model with a U.S. carrier right now. Maybe we'll see what happens there.
On the Truckload side, we see a lot of opportunity, again, in improving our density in Canada, Ontario mostly, to beef up the density, the offering that we could give our customers. We've opened up a small specialty Truckload division in the U.S. through some acquisition. We would like to grow that. There again, there will be lots of opportunity. We're discussing with many trucking company in the U.S. about join the family and do more with TFI. Our balance sheet is really strong. Our team is second to none. Our mission is very clear. We have to go through this storm. We've navigate through some storm before. We're going to navigate through this one. We're really solid. We monitor things by the day. We're not sitting on our hands.
Perfect. That's all from me, Alain. Thank you so much and have a good one.
Hey, thank you. Likewise.
Brian Ossenbeck with JPMorgan, your line is open.
Good morning, Alain. Thanks for taking the questions.
Morning.
Just to follow up on that last one, you talked about consolidation after all this is done. Can you just run us through competition at this point in time, considering the big drop-off in volume. If you see any place that it's maybe a little bit outsized pressure, particularly in some of the more challenging end markets. Away from consolidation, what do you think about just the general health of some of your competition? Are you expecting, absent consolidation, just for some capacity overhang to get lifted here as some players exit the markets, maybe more the asset-heavy side of the business?
Well, what we're seeing so far from the competition is, I think that everybody's so busy trying to manage the downsizing of the business that they've not been chasing the other guy's volume to try to replace the volume that they've lost because of whatever happened. That's what we've seen so far. That may change down the road, so far, everybody is so busy trying to manage, okay, safety for the employees, downsizing the operation here, doing this, doing that we haven't seen any competition trying to chase volume. The other issue is that if you try to chase volume, the shippers are busy also themselves trying to manage their own issues, right? Is that the right time for them to switch because one trucker is going crazy and offer stupid rates? So far, so good on that.
The business we have, we haven't lost anything so far because of somebody comes in and offer a stupid rate to our shipper and the guy says, "Okay, I'm going to jump on that." So far. In terms of the industry in general, if you look at the industry in general in Canada, it's very different than the industry in general in the U.S. because what we see out of the large trucking company in the U.S., their balance sheet is strong. Most of them don't have any debts. I don't think they're going to go crazy banana. In Canada, it's a different story. Most of the companies are small, highly leveraged. For sure, some of those guys are calling us and we're saying, "Guys, I mean, M&A is completely out of the question for us now." We could start looking at the situation.
This is why when I say looking at the situation is today we probably have eight or 10 active files in Canada that we're just waiting, okay, to say, okay, go because we have more visibility about our Q2 and what Q3 may look like. After we look at April, we look at May, and we, okay, fine. Are we on plan with our new refocused plan? Are we better than the plan? Are we worse than the plan? That will guide me into saying, well, okay, these are the small deals that we could do right away in Canada. These are the small deals right away we could do in the U.S. The M&A machine at TFI has been put on hold for now, okay, because we want to be cautious, but that doesn't mean that the activity is not there.
We have lots of opportunity that's going to be so great for our shareholders in the future.
Okay, got it. On the self-help side of things, obviously, you're managing through this just like everybody else, I think a little while ago, you combined some of the leadership for Last Mile Logistics and gave them some more responsibility in the U.S., the Canadian team. Maybe you can just give us an update on things away from in the areas that you can control combining the systems and operations platforms rather on the TL side in the U.S. and then specifically on Last Mile Logistics. Is that something you're just sort of treading water on given the current environment or other levers you can pull here in the meantime?
You know what, Brian, what we've done with our logistics, trying to have Kal overseas both division U.S. and Canada, having Dean overseas both salesforce U.S. and Canada, having also our Canadian financial team help our U.S. team there. It's already helping our U.S. team to do much better. Don't forget that these guys have to swallow, okay, three acquisition. We bought Dynamex U.S., completely disorganized. We bought BeavEx in 2019, completely disorganized. We bought the courier division of Donnelly, even worse. Those guys had a lot of challenge, and they need help. They need support. This is why if we look at all these acquisition, this is beefing up the revenue, helping us, okay, improve our density. At the same time, we're also correcting some mistakes of the past, some cultures issue, the focus about making two points. Is that good business?
Well, maybe for the other guys, not for us. Change this culture. If we look at our Q1 U.S. Last Mile, it improved. It improved by, I would say, about 200 basis points. I said that in Q4 on the call, is that I'm seeing at least 200 basis points improvement in our U.S. Last Mile operation, even in a very difficult context, because some of our great markets like New York, forget about New York. It's down 60% in New York, 60%, 65% because of what's going on there. Some of the great markets like Chicago, it's down also as well. Even with that, we're doing way better in terms of dollars, bottom line, and percentage. It's a great move. There's a lot more to do
Okay, got it. Last quick one, if you can just offer some comments on the decentralized model that you have with more of a central overlay for a lot of the functions and the monitoring. You touched on it a few times during the call in terms of how you're monitoring things by the day instead of by the week, just wanted to see if, given this current stress test that you're going through, what you think of the model going forward. If there are things you're looking to add or tweak, or is this what you expected out for it to perform and the people underneath you, given the current environment?
Yeah, Brian, our team is really great. What I've done is monitoring by the day instead of by the week. It's just I want to make sure, because I've got a responsibility with the Board and with my shoulders, and I don't want to come out with the excuse that, "Oh, okay, so we dropped the ball." No, we can't come in with some excuse we dropped the ball. I've got a strong belief that my guys are doing the right thing, but I just wanted to make sure that, hey, we don't drop the ball because this is, like you said, a lot of stress. You have to manage downsizing, you have to manage customers' expectation, et cetera. These are very difficult times.
In very difficult times like that, this is when you see that you got a hell of a crew, and I'm so proud of our crew at TFI. All my EVPs, the guys are doing a fantastic job. Me, like we always do in the head office, we just want to make sure that those guys are focused on the right things. This is why I went through a lot of different critical phase in my trucking career. I've been a trucker for some 20 years. I'm there just to make sure that we don't drop the ball, we don't lose focus. Also I'm there to motivate the guys and to encourage them. It's not easy to do what we have to do now to be successful and to preserve capital and to keep the morale up.
When you have a business that drops 50%, it's not a crisis, it's a tsunami. You have to let go people, you have to, "What are we going to do tomorrow?" It's not easy, this just happens overnight. It's not something that has been going on, okay, for six months. It just, boom, it happened. Okay, what do you do now? Right?
Right. Okay, great. Thanks, Alain. Appreciate the time.
Pleasure, Brian.
Walter Spracklin with RBC Capital Markets, your line is open.
Yeah, thanks very much. Good morning, Alain.
Morning, Walter.
When I look at your free cash flow for this year, I know you're probably reluctant to give any guidance there, but just looking at CAD 1 of free cash flow deployment, it sounds that, obviously, you've talked about acquisitions being on hold for now. Would that hold as well, obviously dividend, buyback, and really you're just reloading your balance sheet, building up liquidity? Is that the best description of the 2020 strategy for free cash flow?
Yeah. There's no concern on the dividend. We're not going to do anything on the dividend in 2020. In terms of M&A, like I said, nothing's going to happen in Q2, and there may be something in Q3 and in Q4, depending on what's the visibility we have now. In terms of the buyback, we put that on hold. We did some buyback in Q1. We bought back about a million three, 1.3 million shares. This was not normal because normally you don't issue shares, then buy it back. This was just because we gave notice. As a matter of fact, it's RBC that managed our NCIB prior, and the stock dipped so much with what happened that the buyback was now back on track. As of April 1st, we're not doing any buyback. We're just going to wait and see.
Once we see what April looks like, what May looks like, and what the stock price looks like, maybe then it becomes a choice. Are we going to buy a company, or we're just going to buy the stock? We'll see then, but I don't think NCIB is in the picture, at least for a few months.
So as we go-
Like we said-
Yeah, go ahead.
Excuse me, Walter, but on the CapEx side, it's going to be a huge reduction, and we can afford that because our fleet is so young in the U.S. We've canceled the U.S., but we've postponed Canada. On the Canadian side, depending on what we see in Q2 and early Q3, or in Q3, we could get the benefit of those CapEx, okay? They were booked at a very low exchange rate, U.S., Canada. We would like to do those Canadian CapEx in Q4, but the environment has to be positive for us to do that.
You mentioned some files you were investigating, you're doing due diligence on, you're holding back for now, obviously, given the conditions. What's your main concern? Is it really just you don't know how much COVID is going to impact the operations of potential targets, and you want to get a better handle on that? Is it that the seller has gotten a little bit more reluctant, or are you renegotiating price given everything going on? What's the tenor of the discussions with those you're already actively involved in?
Yeah. The first reason for us to put that on hold is to preserve cash. Not knowing, okay, what will be the impact of the virus and how long this is going to be an issue. All the discussion we're having with sellers, nothing is about price so far, because we don't want to talk about price with these guys trying to tell them that, "Well, market valuation of trucking company has dropped 30%, so we have to drop our offer 30%." We don't like to do that. Because maybe TFI stock is down 30%, 40%, but maybe it's going to be up 30% in a year and a half. We don't play this game of trying to squeeze the seller. We have a reputation, us in Canada and in the U.S., to be fair, so we want to buy at a fair price.
If there's a permanent impairment in the target, because those customers that this guy has, or let's say his revenue was CAD 60 million, and it will never be back at CAD 60 million. It's because whatever happens, he's got a lot of B2B customers that are shut down and they will never reopen. We have to readdress the price because of that. We never readdress the price because of market condition. This is not fair in our mind. For now, everything is on hold because we want to be cautious about preserving the cash.
On that note about permanent impairment and then opportunity. Obviously, there's going to be companies that post-COVID-19 are permanently impaired. There'll be those that go back to normal and those that thrive and go to benefit from a new normal. When you look at each of your businesses, generally once COVID passes and a new kind of new normal establishes, what's your anticipation, division by division, of whether they can go back to normal, whether they will be permanently impaired or what areas would actually propel to a new level post-COVID-19?
That's a very good question there, Walter, I think that on P&C, I said it, is that because of B2B will never be the same pre-COVID-19 and after COVID-19. I think that a lot of malls, a lot of stores, et cetera, will never reopen. That will have some effect to our B2B within our PNC next day delivery system, because the guys will never reopen. That being said, it will probably be small, nothing major. It will be more than if we wouldn't have this virus that accelerate the e-commerce. We will probably lose a little bit on that side, we will gain tremendously in our Logistics and Last Mile operation, both in Canada and the U.S.
The LTL, to me, I've said it many, many quarters, is LTL it keeps on going down all the time because of the e-commerce. The only way us we've been able to sustain some kind of revenue is through M&A. Feed the beast. Why? Then just continue serving the good customer that you acquired through the acquisition and just get rid of all the small guys that don't want to pay a fair price. LTL is a little bit the same as the P&C because all these malls have been fed by P&C guys and LTL guys. To me, there's a little bit of permanent impairment there. This is why us, our M&A strategy in LTL will keep on doing what we've been doing for that long of a time.
I don't think Truckload will be impaired at all because Truckload, either specialty or van, all this switch of e-commerce is really not a big effect on Truckload. Those fulfillment center have to be filled up like the DC of Walmart and the DC of Amazon and all the guys. On the Truckload side, I don't see anything significant because of this virus before and after. Huge gain in my mind down the road with our logistics. We're already seeing that. Some customers are just saying, "You know what? We would like an Amazon type solution." "Well, guys, we have that." "Well, yeah, but we don't have any DCs." "Well, okay, fine. We don't have any DCs us, but we could match you with someone that's got a DC. That's their business to run DCs." We see that, and it's the diamond within the TFI family.
Like the P&C used to be one of our diamond. P&C is still a diamond within TFI, but it lost a little bit of its luster because of this maybe some small permanent impairment because B2B will never be the same after this virus thing gets back to normal. All in all, if you sum that up within TFI will be a huge gainer after this virus is behind us.
Got it. Okay. That's really good, color. I really appreciate the time today.
Pleasure, Walter.
Cameron Doerksen with National Bank Financial, your line is open.
Yeah, thanks. Good morning.
Morning, Cameron.
Just two really quick ones for me. First, just on our Donnelley acquisition. You mentioned that the profitability of that revenue is probably pretty low. I'm just wondering, just in the very short- term, what that means for margins in that business. Is that a business that you can pretty rapidly get the quality of revenue improved?
Absolutely. I'm convinced on that, Cameron. We bought the business. We had to shed one major account that didn't make any sense. Those guys are gone or will be gone within the next few weeks. There's another one that will be gone in June, significant customers, but it's just crazy. Listen to that. We had a cargo liability with those guys in CAD 10 million. I said to the guy, I said, "Who can be hauling opioids or things like that with a CAD 10 million cargo?" You can't negotiate the rates with the customer. The first thing you have to negotiate with him is we don't want to have this CAD 10 million liability. Customer says, "Well, we'll try to find another stupid trucker that's going to accept that." Well, good luck. That being said, those two or three customers are gone.
The rest, what we see so far will be good business, and it fits into our network. This Donnelley acquisition, once we get rid of all the things that don't fit TFI, it's going to be fantastic.
Just secondly for me, just on the Specialty Truckload in Canada specifically, one of the drivers there is obviously construction activity starting to see a little bit of opening up. Is that, is that one of the bigger drivers of that business rebounding is really construction coming back?
Construction is one. Mining is the other. Mining is back. For mining, you need the world economy to get back on track. Yes, the mines are reopen in Canada, so it's good, but we need the global economy to be on track. When you look at what is anticipated for 2020, most of Europe is going to be down GDP about 5%, 6%, 7%, U.S. about the same. It's going to be still a difficult year for us in 2020, but I think 2021 is going to explode back into what makes more sense. The other business that's affecting us is the Automotive business because of the steel. Steel and automotive, I think it's going to be really difficult for them, at least for a year. Probably it's going to be slow until mid-2021. Not 2020, but 2021.
Really the Specialty Truckload, it will probably be the one that is less affected, but really our flatbed is the one that is mostly affected now. As an example, we own a lot of explosive for the mines. Everything was put on hold until now. In Quebec, the construction has been put on hold since mid-March. They are starting slowly to reopen. This has been a huge negative for us in Quebec. I think Quebec was the only province or state that closed down their construction industry.
Okay. No.
Slowly, it is back on track.
Okay. No, that's helpful. That's all for me. Thanks very much.
Pleasure, Cameron.
David Ross with Stifel, your line is open.
Hey, good morning, Alain.
Morning, David.
Just a quick question on the Last Mile in the U.S. after the three deals you've done recently, are there any holes left? How do you think about the U.S. network and where you want it to be in a couple of years versus where it stands today?
Yeah, that's a very good question. Yes, we have some markets where we could be stronger or better. We're always on the lookout for some M&A. We have discussion with another group and finally maybe it will happen sometimes late this year or early into next year. Really the main focus of our business in the U.S. with Kal and Dean there is to really sell our solution. Okay. We've been very successful in Canada selling our solution, but not so much in the U.S. as of yet. Really, we have a great solution for e-commerce. We have a great solution for, let's say, the healthcare industry. We do well, but we could do better. Really, M&A, yes, if we can find the right target in the U.S., absolutely, we'll going to jump on that. I don't see anything major in 2020 on that.
What I see very important with Kal and Dean and Scott Leveridge and all the team in the U.S. is, guys, we have a fantastic solution, okay, that is second to none, and we have to have customers understand better. We are really focused on that for 2020. The problem is that, try to sell something to a customer now, it's difficult because they're like us. They're stuck in this major crisis of the virus, so there's not a lot of people to really listen to a new solution. We're educating our salespeople. We're working on the program and all that to be ready as soon as we can sell this solution to the market. Right now, big issue is how we going to digest all these acquisitions. We're doing that now.
We've improved our bottom line, like I said earlier, in our U.S. Logistics by about 200 basis points in Q1. We still have a lot of work to do with the Donnelley acquisition. We're busy. We got lots of good stuff, also we're getting ready as soon as we can to sell our solution like we're doing in Canada, in the U.S.
You talked recently about the Automotive sector and how that's going to take some time to come back. It's about 9% of the business. Which segment is that most concentrated in? Would that be LTL and Canadian Truckload, or is there something else?
It's Canadian Truckload and a little bit also U.S. TL. We got PACCAR as an example, customer both in U.S. and Canada. Those guys are shut down. We got Mercedes-Benz in the U.S. Those guys are shut down. We got Nissan. Okay. It's, I would say, probably a little bit more U.S. than Canada for the Automotive business today. U.S., Mexico.
Okay. It's primarily in the Truckload segment?
It's Yes, Truckload. Yeah. Nothing major in LTL or in P&C.
Excellent. Thank you.
Pleasure, Dave.
Our final question comes from the line of Benoit Poirier with Desjardins Capital. If you'd like to ask a question, please press star one. Benoit, your line is open.
Hey, good morning, Alain.
Morning, Benoit.
Yes. Just to come back on the potential targets on the Last Mile business in the U.S., would it be similar profiles to Dynamex, Donnelly, and BeavEx, or this would be, let's say, more organized companies, or how would be the profile?
No. It's going to be the same kind of profile the three that you just talked about.
Okay. That's great. Okay. When we look at e-commerce, you've been very disciplined in the past. You could have grown that business much higher, profitability was always a big threshold. I'm just wondering, given the strong demand we see these days, what about the pricing environment? Do you think there's better opportunities, given Amazon are very busy, and is your goal to become fully integrated or really to complement the biggest player right now?
A good question. Yes, Amazon for sure is really, really busy. What we've done, us, in the meantime is, because New York as an example, we're down so much in New York with our regular customers, our U.S. team said, "Okay, we'll do a deal with Amazon." Right now we're delivering about 5,000 parcels a day in New York because we're down so much. We know that this is short-term. We know that as soon as they will try to find somebody else to do it cheaper than us, because us, we're about making money. That being said, the environment, what we're trying to do, Benoit, is have customer understand better our solution. Our solution, like you said, is not fully integrated like an Amazon solution. Amazon's got the DC fulfillment center and distribution today.
Our solution is a little bit like the other transportation company, UPS or FedEx, whatever, is that we offer the transportation, not the DC. Our solution to customers that have DCs or are matched up with DCs is similar to what an Amazon solution is. Very efficient, lean and mean, great service, and that's what we're trying to do. Down the road, okay, does it make sense for us to really have a partnership, okay, with someone that's got the DC capability and that's offering this kind of service to the shippers? Maybe that may happen, Benoit, but we're not there yet.
Perfect. When we look at the fuel and the foreign exchange, obviously there's been some big movement year to date which I would expect to be favorable. Could you maybe provide some color or on how is it going to be flowing to the bottom line with respect to fuel and FX?
Fuel's a pass-through, so really nothing major for us on the fuel side. Really on the FX, for sure. We need U.S. dollars profit to be significant. Depending how good our Last Mile and our Truckload guys will do in the U.S. will definitely help TFI. Our Canadian division mostly run Canadian dollars, except for some of our Truckload division. It could help us a little bit in the rest of the year because now I think the dollar is about CAD 1.40, something like that, so we'll see. This is not something I would say, Benoit, it's really significant for us in terms of bottom line.
Okay, perfect. The last one for me, you provide a consolidated number for net CapEx this year. I was just curious whether the amount of asset disposal should be bigger in light of the adjustment to the capacity pretty similar to the past?
No. Normal.
Okay.
What we're doing is we're not shedding trucks, okay, because of this revenue shortfall. Like we're protecting our employees with our system of bonus to bring it back to work, we don't believe today that this will be long-term impairment in terms of the volume. It will be a disaster in Q2 in terms of the volume. Everything that we read says that maybe the U.S. GDP in Q2 will be down like 30%, okay, but it's up in Q3. Okay. In Q4. Everything that we read about that. What we're saying is that, okay, well, we don't have any other options, so we sell what needs to be sold, but what is still useful for the company in the time being is we're going to have to park that at the fence and wait till the business comes back.
I see. Okay. Thank you very much for the time, Alain, and congratulations again.
Thank you, Benoit.
There are no further questions at this time. I would now like to turn the call back over to Alain Bédard for final remarks.
Well, thank you, operator, for facilitating this morning's call, and thank you everyone for joining us today. We at TFI International very much appreciate your interest and want you to know that, as I've said, we're working hard to create value and unlock it for our investors, and whenever possible, return excess capital to our shareholders. I look forward to updating you throughout the year, and I can assure you that working together, we will all make it through these unprecedented times and emerge even stronger. Have a great day, and thank you again.
This concludes the TFI International's First Quarter 2020 Results Conference Call. We thank you for your participation. You may now disconnect.