Good morning, and welcome to the second quarter 2020 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through August 7, 2020, by dialing 719-457-0820. The replay passcode is 1,718,368. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.
You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission, and in this morning's news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. As a final note, before we begin today, we welcome your questions, but we ask, in fairness to all, that you limit yourselves to just a couple of questions at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead, sir.
Good morning, and welcome to our second quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. The OD team delivered solid financial and operating results for the second quarter, despite the operating challenges we faced with the economy. Our revenue declined 15.5%, we were pleased to improve our operating ratio to a quarterly record of 77.8%. We accomplished this by focusing on improving our yield, managing our variable cost, and controlling our discretionary spending. Our yield management process has strengthened the quality of our revenue and profitability over the long term. Through this process, we manage profitability on an account-by-account basis. We believe this approach is consistent and fair for our customers. It is also supportive of our ongoing investments in capacity and technology while helping offset cost inflation.
We believe customers appreciate the consistency of this approach as they know what to expect from us each year. Providing superior service at a fair price is our value proposition, which is critical to our long-term customer relationships. Our team is relentless in its commitment to providing the very best levels of service to our customers, regardless of the economic environment. While we contended with many operating challenges in the second quarter, including the 16.6% decrease in shipments per day, we produced a new company quarterly claims ratio of 0.1% while also improving productivity. There are many components of our industry-leading service, and based on customer feedback, we believe the gap between us and our competition has widened in the current environment. It has historically become a common practice in our industry to focus primarily on cost in a recessionary environment.
This narrow focus generally leads to customer service failures, which is why we are so committed to the service standards that support our revenue quality. We have long believed that this creates a competitive advantage for us in our industry, and it is especially critical now because the importance of high quality and dependable service seems to have recently increased for many of our customers. As evidence to this trend, we have been awarded new business in the past few months from customers that have historically provided lower rates rather than overall value. This trend not only leads us to believe that many of our competitors are remaining relatively disciplined with their pricing, but it is also encouraging for future market share opportunities. While the quality of our revenue is critical to our operating ratio, appropriately managing our cost is just as important.
Minimizing our cost inflation on a per shipment basis is an ongoing process based largely on the productivity of our employees as salaries, wages, and benefits represent our largest expense. As a result of operating efficiencies and improved productivity, we are able to improve our direct cost as a % of revenue during the second quarter. The unfortunate reality of the sudden significant reduction in revenue that occurred in April 2020 was an adjustment to our workforce to balance our employee count with available work. Believing that the economy could recover quickly we implemented an employee furlough program that initially resulted in a 15.5% year-over-year decrease in our full-time employees in April. While the economy is still recovering, our volumes increased sequentially in May and June, and we are cautiously optimistic that this accelerating trend can continue.
Many of our furloughed employees have been able to return to work as a result of this improvement. We took various other measures to reduce operating expenses while also controlling discretionary spending to reduce the overhead cost. In addition, circumstances associated with the COVID-19 environment created certain cost savings that are expected to diminish in future periods, such as a reduction in group health and dental claims, travel, and customer entertainment. Second quarter of 2020 was one of the most difficult periods I have experienced in my career, and I am especially proud of our team's ability to respond quickly and manage our operations in this environment. I think the quality of our results shows that our business model works in both good times and bad.
While certain challenges will likely continue until the economy recovers, we believe there will be long-term changes to supply chains that should create opportunities for the LTL industry. With our industry-leading service, our unmatched long-term investments in service center capacity, and the dedication of our OD family of employees, I'm confident that we are in a better position than any other carrier in the industry to respond to increased customer needs for LTL services. As a result, I am also confident in our ability to continue our long-term of producing profitable growth while increasing shareholder value. Thank you for joining us this morning. Now Adam will discuss our core financial results in greater detail.
Thank you, Greg, and good morning. Old Dominion's revenue for the second quarter of 2020 was $896.2 million, which was a 15.5% decrease from the prior year. Our operating ratio improved 10 basis points to 77.8%, which contributed to our earnings per diluted share of $1.25 for the quarter. Our revenue results for the second quarter reflect the 12.1% decrease in LTL tons and a 3.8% decrease in LTL revenue per hundredweight. The decrease in the average price of diesel fuel reduced our fuel surcharges, which had an impact on our top-line revenue as well as our yield. Excluding fuel surcharges, LTL revenue per hundredweight decreased 0.5% due primarily to the significant increase in weight per shipment. Multiple factors can have a significant impact on revenue per hundredweight, most notably being the average length of haul and weight per shipment.
Changes in revenue per hundredweight are also not linear with respect to changes in our mix. As a result, revenue per hundredweight is a tough measure to evaluate when the mix of our business changes so significantly like it did during the second quarter. While the change in revenue per hundredweight might suggest otherwise, we continued to negotiate rate increases during the second quarter and believe underlying pricing trends remained relatively consistent. We believe revenue per shipment is a better measurement as we focus internally on maintaining a positive spread between our revenue and cost per shipment. The 4.9% increase in revenue per shipment, excluding fuel surcharges for the second quarter, was relatively consistent with the change in the first quarter of 2020, as well as our long-term trends.
With respect to our revenue trend during the second quarter, revenue per day on a year-over-year basis was down 19.3% in April, but then sequentially improved in the remaining months of the quarter. Average revenue per day in June, for example, was down 11.4% as compared to June 2019. Our change in volumes also followed a similar pattern. On a sequential basis, LTL shipments per day decreased 15.7% in April as compared to March 2020. Shipments per day increased 9.7% from April to May and increased 7.1% from May to June. The sequential acceleration in shipments and revenue has continued into July. With only a couple of days remaining in the month, our current revenue per day is trending down approximately ±3%. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q.
Our operating ratio improved 10 basis points to 77.8%, which was a record for us despite the significant decline in revenue. More than two-thirds of our costs are variable or semi-variable, Our team was effective in matching these costs with the change in revenue while also controlling our discretionary spending. Our operations team also did an outstanding job with improving efficiencies during the quarter. We have historically improved productivity during recessionary environments, From experience, we believe we can maintain much of this productivity once we return to a growth environment. While the loss of revenue certainly had a de-leveraging effect on our fixed cost, the improvement in our direct cost as a percent of revenue more than offset the increase in overhead cost as a percent of revenue.
Old Dominion's cash flow from operations totaled $312.2 million and $516.2 million for the second quarter and first six months of 2020 respectively, while capital expenditures were $67.9 million and $120.1 million for the same periods. We returned $146.1 million of capital to our shareholders during the second quarter, and $342.7 million for the first half of the year. For the year-to-date period, this total included $306.8 million of share repurchases and $35.9 million in cash dividends. Our effective tax rate for the second quarter 2020 was 25.7% as compared to 26.1% in the second quarter 2019. We currently expect our effective tax rate to be 26.0% for the third quarter of 2020. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.
Yes, sir. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one if you would like to ask a question. We'll take our first question from Jack Atkins with Stephens.
Hey, guys. Good morning, and congrats on a great quarter. Thanks for taking my questions.
Thanks, Jack.
Thank you.
Adam, if I could maybe start going back to your commentary on the pricing environment for a moment, because I think in your prepared comments, you said that the pricing environment remains relatively consistent with what you've been seeing over the past several quarters with regard to the second quarter. We have heard some anecdotes on public conference calls here, though, over the last couple of days that maybe there's been a little bit of an acceleration in pricing in the third quarter. I'm just curious if you could maybe talk about, have you noticed a shift in tone around pricing in discussions with your customers over the past several weeks, maybe couple of months?
I don't know that we've heard of a shift in tone at any point recently. Certainly, our approach is always one of consistency, and I think that's what our customers appreciate. They know what to expect out of us, and we're pretty disciplined in that respect to focus on what our cost inflation is every year and the pricing and the operating ratio on an account-by-account basis that we try to target with our customer accounts as well. For us, we just continue on with our consistent approach, and we've been getting increases all year long. In some cases in the early part of this quarter, that may have impacted some of our volumes as well. Like we mentioned earlier, we are starting to see some volumes coming back to us.
That's been an encouraging trend in some of the business that we may have lost back in April. Some of that business coming back to us just based on the service that they received from the other carrier that they might have switched to. When they look and think about the total value equation, they didn't feel like they were getting the value there and they came back to us. That's what we'll continue to focus on is just our consistent long-term type of approach to offset cost inflation that's worked for us, and that's what we intend to continue.
Okay, great. That makes sense. I guess for my follow-up question, just thinking about the operating ratio here. I guess normal seasonality 2Q to 3Q would call for some modest deterioration, your commentary around revenue trends per day in July would indicate that maybe revenue is trending better sequentially. There's some temporary costs that are getting layered back in now that the business is stabilizing. Adam, can you maybe help us think through those puts and takes and how that relates to OR progression as we move into the third quarter?
Sure. Yeah. It typically is about a 50 basis point deterioration from the second to the third. In a normal environment, which clearly we aren't in, we would have seen the second quarter revenue up about 10% over the first quarter, and then third quarter increases slightly, typically from the second quarter. You get, historically speaking, most of your operating ratio improvement there in the second quarter on a sequential basis, that is. In this environment, if we can keep this accelerating revenue trend, then some of the leverage that we lost, particularly in overhead, and within that overhead category on the depreciation, we lost quite a few basis points there from the first to the second quarter.
If we can continue this revenue trend and revenue can meet or exceed where we were in the first quarter, then certainly that depreciation in particular unwinds, and there should be some other costs that would unwind along with that. We fully expect to try to maintain the productivity. That should continue. Certainly, there will be some costs that will be coming back online in the third quarter. Given all those factors, we certainly think that we should definitely be able to beat what that long-term deterioration is. Simply, if nothing else, just the improvement that we should have the leverage on the depreciation.
Okay, great. Thanks for the time.
Yeah.
We will now take our next question from Todd Fowler with KeyBanc Capital Markets.
Great. Thanks, good morning. Greg, in your prepared remarks, when you talked about the quality of revenue and improving that here in this quarter, I would think that that's maybe a little bit more challenging in a negative tonnage environment and maybe in a stronger tonnage environment where you can pick and choose the freight that you want, it's a little bit easier. Can you expand on that comment and essentially, what you're focused on and what you're able to do from a quality of revenue standpoint right now?
Sure, Todd. No doubt, in this deteriorating environment that we just came through, we did see customers more likely to put out bids and rebid their freight and that kind of thing, and that was definitely a challenge for us. As Adam mentioned, we did lose some business in that process, but we gained some from others. Fortunately, in other cases, we are gaining back some revenue that we lost earlier because they couldn't meet the same service standards that they had with us. It's an ever a challenge. That's our business, and there's always, you win some, you lose some. Fortunately, at the end of the day, you hope that your service outshines and the value outshines your competitor. Far so good. We are regaining some of the business that we lost. That's a good thing. We've taken on some new additional business of late.
I think there have been some opportunities that did open up for us as the quarter went on and as we roll into the third quarter so far, the month of July, it's definitely looking stronger.
Okay. Greg, just had a comment that, yeah, some of the business that you lost early in the quarter maybe was more some price sensitive business and it didn't fit as well in the network or wasn't as profitable, it was okay to see that go away, you're starting to see some of that come back now.
We are. Coming back at our price.
Got you. Okay. That makes sense.
Coming back at our price. We obviously lost it to a lower price. That doesn't mean the customer got a greater value. It came back because of the value we provide.
Understood. Okay. Just for my follow-up, Adam, do you have any color or anything you can share on the increase in the weight per shipments, the up 5% and the level that you're at right now? Is that something that you think is sustainable? Do you see that as a shift in the business that you're handling, or is that indication of improvement in underlying economic activity? Thanks.
Sure. The weight per shipment has certainly been a wild swing since the trend that we had back in January and February. Right when things started changing, our weight per shipment increased above 1,600 lbs in March. It reached a peak of 1,677 lbs in April, and then it started working its way back to more of an average that we've seen over the longer term of about 1,600 pounds. It was right at 1,600 pounds in June. Much of that was in the early stages of some of these stay at home orders. We had more national account business that remained open. National account business typically has a higher weight per shipment than our smaller mom-and-pop type of accounts. Now, some of those smaller accounts are starting to come back online, but we're still getting, I would say, more business from our national accounts.
They continue to be strong. When you think about some of the companies that are performing well in this environment and that have increased demand, it's a lot of those bigger on the retail side, some of those bigger retailers, and their weight per shipment just continues to be much heavier. It's a little bit different mix. We're happy to see it coming back to the 1,600-pound range. I would expect that as more of the smaller accounts come back online, it could drift down a little bit lower, but that 1,600-pound range has continued into July at this point. If we can see that stay around that sort of level for the time being, that'd be a good trend and contributor too to the overall revenue per shipment that we're seeing.
Got it. Okay. That makes sense. Thanks for the time.
Our next question will come from Chris Wetherbee with Citi.
Hey, great. Thanks. Good morning, guys. Maybe Adam, I could hit back on pricing a little bit. Can you give us maybe a little bit more specific sort of commentary where contracts are being reset as you get through the quarter? I don't know how much activity was actually happening in 2Q, can you give us just sort of a rough sense? It sounds like it's been consistent with what you've seen, curious if there's incremental color you could add.
Yeah. We stopped talking about our average contract renewals, and some of that, we hear others give the same commentary and be it average increases in contracts or general rate increases never seem to fully reconcile even factoring in changes in weight per shipment to what some of the others might report as their revenue per hundredweight. I would just say that looking at revenue per shipment and how that's trended, that's more in line with what we've been able to achieve with the increases on average. Typically, that's been between 4%-5%, and that somewhat falls in alignment as well. We have a general rate increase that went into effect earlier this year. That was at 4.9%, and that's generally the target that we have for our contracts as well. In that ballpark is really what our long-term trend has been.
It's what we continue to target, and it's what we've been able to achieve this year. It's been a good thing. Obviously, the long-term success of that program, managing our cost where there's a positive delta between our revenue per shipment and our cost per shipment, managing those two factors has really been a key contributor to our long-term operating ratio improvement.
Okay. That's helpful. I appreciate that. Maybe when you think about volume opportunities and just how you want to manage your network in the context of a potentially sort of tightening truckload cycle. When we've seen these in the past, there's been spillover into the LTL market. You guys have always been disciplined about what kind of business you want to take on in those kinds of tight markets, because maybe not all of it is what you really do want in the network. I don't know if it's too early to see any indications of that, or maybe talk a bit about how you're thinking about handling that as you move forward. Just kind of curious, what your expectations are potentially around that truckload opportunity as things move in. Maybe it would be kind of larger LTL, smaller TL type of opportunities going forward.
Yeah, certainly that creates some opportunities for us, it really just gets back to our sales team, their discussions and ongoing conversations with our customers, what their customer needs are. If they've got freight that needs to be moved, and we can help out. Obviously, volumes are off for us. Even though they're getting better, they're still down on a year-over-year basis. We've got capacity and are ready to help our customers when we can. If that's a heavier weighted shipment that might have moved by truckload, there's no such thing as bad freight. There's just poorly priced freight. If we understand all the shipment characteristics and have got good pricing practices in place, which I believe we do, then certainly we're willing to handle about any shipment that a customer would want us to.
The best thing that we would see, the changing trends in the truckload world would be that if the truckload rates continue to increase, typically that has the effect of increasing many of our competitors' cost structure. Many of our competitors use outsourced truckload for purchase transportation. If our competitors now have got some unexpected cost inflation, that's going to put more rate pressure for themselves to go back and increase their rates. Typically, that has the effect too of moving normal LTL business our way. Multiple opportunities, I think, both from a direct and indirect basis for the truckload world improving.
Okay. That's helpful. I appreciate the time this morning. Thank you.
Our next question will be from Allison Landry with Credit Suisse.
Sorry about that. I just wonder, Adam, could you give us a sense of how much the lower group health and dental expenses were in Q2? I know that you said some of that may come back in Q3 and in Q4. Just wondering if there's any color you could provide there to help us with modeling.
Yeah, certainly that was a benefit. Our overall fringe rate, though, in the second quarter was 33.6%, and we typically target about 34%. I think that at the beginning of the year, that was something that we had talked about, and so We were at 34% in the second quarter of last year. Those numbers are pretty comparable from period to period, but probably resulted, I would just say, fringes overall in a couple million dollars, $1 million-$2 million of savings comparing what we had this quarter versus what the fringe rate was in 2Q 2019. A little savings there. There's always sort of puts and takes in that fringe type of number.
Certainly, we were fortunate, I guess, if you will, to see that group health and dental was down and some of the others were up, and on a sequential basis, simply having more income in the second quarter than the first. That drives things like our 401(k) match that we give to our employees, and it's things like that, continuously improving our benefits overall and giving more paid time off and doing some of these things that continue to motivate our employees and we think helps drive the bottom line success as well. They understand the success they drive for the company, they get rewarded for. We think that's been a very motivational tool over the years for our employees and helping our culture.
Okay. That's helpful. I'm sorry if I missed this earlier in the remarks, but could you give us the productivity metrics in the quarter? I think you said sort of they improved across the board, but some of the specific KPIs. If you could give us a sense of where you are with furloughs and just your overall view on how to think about headcount levels in the second half. Thank you.
Sure. We didn't give the specifics on the productivity, saw really strong performance. Our platform shipments per hour for the quarter improved 7.1%. Our P&D shipments per hour improved 4.2%. Even our line haul load average, it improved 0.8%. We talked about before that not all costs are variable. Running this line haul network that we have serving 238 service centers, there's a fixed element of running that cost. I was really pleased with all the level of productivity that we had. As such, when you look at our productive labor cost on a per shipment basis, again, getting things back to how they are per shipment. Overall, they were right at about 3% cost inflation. That's pretty much in line with the wage increase that we gave last year. We had improvement.
We don't give this level of detail, but our P&D and our dock costs per shipment were essentially both flat, and then we had a little inflation overall in line haul, but that would be expected based on that trend. I would say, an update on the headcount. Overall, in June, the full-time employees were down 10.5%, just comparing June of this year to June of last year. We brought many people back from the furlough program. If you look and compare April to June, the headcount is up about 4.5% overall. If you compare where we are today to where we were in March, we're down about 1,400 positions overall, which is about 7%. Based on where we are, our shipments per day should be higher in July than they were back in March.
That was what we talked about in the prepared remarks that, unfortunately, when we go through an environment like this, we've made adjustments like we have, but you find areas of productivity when each department leader is going through evaluating their costs and, costs don't save themselves. It takes action and a plan. We've gone through and we've figured out ways to be able to do more with less, and I think that's what we're seeing now that, if our accelerating trends continue, we certainly will have to continue to bring back some more employees. We fully expect and would like that because it'd go hand in hand with the increase in volumes. I think overall, when you look at the level of headcount with the volumes, those should come back in alignment, and eventually show some improvement there.
Okay. Awesome. Thanks for all that, Tyler. Appreciate it.
Our next question will come from Jason Seidl with Cowen.
Thanks, operator. Good morning, gentlemen. Thanks for the time. I wanted to talk a little bit about the residential deliveries. One of your competitors basically said they saw an uptick, almost a doubling in the percentage. It is still ticked down a little bit for them, but definitely above the prior year. Can you talk a little bit about your experience with the residential market and how you see the margins there for OD?
Jason, we do not measure the number of residential deliveries that we had. I didn't anecdotally hear a whole lot of commentary about additional residentials. I know we had a few more in one segment of our business, but I don't think we saw a significant uptick in residentials at all.
Okay. Would you say that the margins on your residential deliveries are equal to or better than the regular margins?
Jason, as all of our accounts, we price them based on the cost that those accounts require, and we price them accordingly. We price in the residential stop. There is a fee for that, as you know.
Right.
We price them accordingly based on the cost. I think that's an account by account basis, but they are not necessarily better or worse than the other business.
Okay. That makes sense. My follow-up is going to be on any potential acquisitions in the outlook. I know in the past you've mentioned your desire to potentially add some, I guess, business lines that would be complementary to your LTL operations. We've also been hearing in the marketplace that the appetite for acquisitions has picked back up a little bit from the start of COVID. I'm wondering what your thoughts on that going forward are.
At this point in time, Jason, maybe we have somewhat of an appetite for an acquisition. I don't know who that is or exactly what that is at this point. We're not looking at anything currently. We always have opportunities cross the desk, and we evaluate those as they come along. Currently at this time, we're not looking at anything in particular.
Okay. Appreciate the time as always, gentlemen.
We'll now take a question from Scott Group with Wolfe Research.
Hey, thanks. Morning, guys. Adam, just on the 3% drop in rev per day in July, I missed it if you said so, but directionally, can you talk about sort of the tonnage weight and yield trends within that, just directionally?
A lot of that is mainly on the tonnage. You've got some of the yield, if you will, sequentially, that's moving up a little bit. We're continuing to see acceleration essentially on the shipments and the tons. Our yields continue to perform as well. Overall, it's good to see obviously that coming back closer to where we were last year after going through the second quarter and revenue being down double digits, and certainly feels a lot easier to manage and should produce a lot more opportunities once we can get back to revenue being flat and eventually get back to a growth environment, which is what we're more used to.
I just wanted to ask a bigger picture question. You're seeing the biggest revenue drop in a decade, and you put up record margins. By the way, it's not just you, we've seen this from some of the other trucking companies this quarter, and I'm just trying to understand how this is happening. You mentioned a little bit of that healthcare cost, but do you think there's anything else unusual from a cost standpoint, either fuel or lack of congestion or something else? Ultimately what I'm trying to figure out is next year we're going to have good volume and revenue growth, hopefully. Should we be thinking about strong incremental margins next year and getting to a mid-70s operating ratio?
Is next year a year where we get the revenue, but maybe we don't get the incremental margin because there was something that was just unusual helping in this environment? I guess that's the question.
Scott, let me say this. There were certainly some things that worked in our favor, not just ours, but probably the entire industry. Obviously, the traffic congestion was a lot less than it has been in the past. We did save some money on the group health and had less spend on customer entertainment. Some areas of marketing were down from what we normally see. There were some things that did save some short-term type costs. I'll say this, when this thing first started, we sat down as a management team and we made a plan. The one thing that I made very clear was we had to execute on that plan. We didn't dilly-dally. We executed, and I think everybody took it very serious what they had to do. Our big concern was continue to give the type service that our customers are used to.
We didn't cut anything from that standpoint. We were very pointed and determined in our efforts to continue all the different service measures that we have and to continue to improve on those. We did it, and I think you saw it in the reduced claims, and our on-time percentage was still above 99%. We did not slack off in any way, shape, or form from that standpoint. I think our customers accepted it. While we may have saw some business walk for price early in the quarter, it started to come back later in the quarter as they realized they weren't getting what they were used to with OD. Yes, there were some areas where we did save some money, but we did a lot of the things that we had to do to help ourselves from a productivity standpoint. Yes, some good.
Certainly we made a lot of things happen that we're very proud of at this point in time. As far as next year, certainly we think that there is an opportunity to continue to have the same type productivity levels of improvement that we had in the second quarter. You can measure it from there. We certainly expect our revenue growth to come back. Not exactly sure where that's going at this point in time. Who knows where the economy's going to go? We're facing a lot of things later this year and on into next year with the election year and all that. A lot of challenges ahead, but we do definitely think if we have some growth that we can drive the OR lower. I don't think there's any doubt about it.
As we've said before, we think we can manage through the good times and the bad. I think we've proven that in the past, and I don't think there's any doubt we will continue to prove that into the future.
Okay. Thank you, guys.
We'll take our next question from David Ross with Stifel.
Yes. Good morning, gentlemen. Just to follow up on that a little bit, specifically as it relates to fuel, seemed to be a tailwind for a lot of carriers in the quarter. What was the impact, Adam, of the sharp drop that we saw from March to April in fuel? Was it a good guy in the quarter? Significant?
David, we've tried to structure our fuel tables to really where they don't really impact us on the bottom line too much one way or the other. We got hurt a little bit a few years ago, back in 2016, really didn't have the lower end of our table where it needed to be. We addressed that throughout the year and then fully addressed it when the next GRI came about. Net net, we tried to do some back of the envelope types of calculations and believe it was fairly minimal on a net basis, maybe overall slightly good. The hard thing to try to negotiate and do these back of the envelope type of calculations is the simple fact that fuel is just another element that's pricing that's negotiated with our customers.
If you got somebody that wants to make, in this environment, look like their base rates were better, that they didn't take an increase, but we got an overall improvement in our fuel contribution or some other type of element that really gives us the same level of revenue, then that just becomes a tool to negotiate with. It's really hard to try to make that comparison. I'll say the change on the cost side, obviously it hit us hard on the top line. Then on the cost side, you see the change
The improvement in the operating supplies and expenses, a big driver of that, not all of it, but a big driver of that was the decrease in fuel. Typically, when fuel changes so significantly like that in a period, you'd see the corresponding increase in your labor cost. I think that hits, kind of mask the overall improvement, if you will. To keep our labor costs essentially flat like we did in this environment with the surcharge revenue being down so much, it was really impressive to me, and I thought that was the biggest driver in our ability to improve the operating ratio, was what we were able to accomplish with all of those labor costs as a percent of revenue.
Another thing impressive has been the insurance and claims line item. It's been remarkably low and steady in a tough insurance market for a long time. Can you talk a little bit more, either Adam or Greg, about what really makes it a non-issue for you guys and not something that investors have had to worry about on the expense surprise side?
There's two elements that go into that insurance and claims line. That's our auto accidents, we call our BIPD, the bodily injury and property damage, and the cargo claims. Fortunately for us, our cargo claims has consistently improved and almost nonexistent at a record 0.1% for this most recent quarter. That element has come a long way. You go back to the recession when I feel like we really differentiated ourself, the Great Recession of 2009, when we really differentiated ourself from our competition. We're above 1%, and we believe that that's where the industry average is likely still north of 1% from the data that we get and feedback from customers. That's a good thing that we've consistently driven that claims ratio down.
On the auto side, certainly this year, it's in the second quarter, like most of the other carriers, we're facing significant inflation with our insurance rates. We've been very fortunate in the fact that all the investment in new equipment and safety systems and training and so forth that we've made over the years, those all have accident mitigation type of tools with them in our tractors now, just continuous training on the dock and other places that we've done. There's an element that goes into this line. There's an element in our salaries, wages, and benefits that goes hand in hand with those safety programs. We continue to see workers' comp, which is in the benefit line, improvement there.
I think it's been a focus of our company to have safety programs in place and to always be trying to continuously improve those. I think we've seen a big benefit. The insurance line is one, but there's a hidden one that's in the fringe benefit line on the workers' comp that goes hand in hand. If we can just keep our accident frequency ratios low, those continuously improve, and try to keep severity low as well, and some of that's mitigated by the investment in technology on the tractors, then hopefully we can keep that line item consistent like it has been in that 1%-1.2% type of range.
Great. Thank you.
Our next question will come from Ari Rosa with Bank of America.
Great. Good morning, guys. Greg, you mentioned in your opening remarks some lasting changes to supply chains as a result of the pandemic, which you think could benefit LTL carriers. I was just hoping you could elaborate on that a little bit and get into some details, and then maybe, in the process, touch on what kind of e-commerce volumes you're seeing, and if you've seen a big uptick in demand on that front and how it might impact your business.
We did see increases on those e-commerce type accounts. We did see some big revenue jumps with those particular accounts on the inbound side for us particularly. I think we don't participate in a lot of home deliveries and that kind of thing, but there's another end to that. We did see some upticks on those accounts, which is a good thing, and that was really what those comments were pointed towards. I think we'll continue to see those type customers' business bases grow. I think that's a good thing for us, generally speaking.
Do the characteristics of that business from either a pricing or kind of weight standpoint vary in terms of how it impacts your costs? I imagine you're still going to be pricing appropriately as you've kind of hammered home for years. How does that business vary in terms of its characteristics?
Those accounts, they have practically everything. They have a very wide variety of products. Yeah, each account that goes into those is vastly different, but they're all priced accordingly. I don't think there's anything different, generally speaking, than with a lot of our other accounts. We will price them accordingly regardless of the product. Yeah, I'll just add that.
Got it. Thanks, Adam. Yeah.
I was just going to add that we've seen growth over the last couple of years in our retail-related business. It's close to 30% of our overall revenue, so we're still closely aligned with the industrial sector. Nevertheless, that business has been growing. This has been a trend that's been evolving, but certainly accelerating in this environment. Things aren't going to completely change overnight in terms of supply chains and whatnot. Certainly, we feel like that more fulfillment centers, things of that nature, as they continue to be built around the landscape, then much of the freight that will be inbound to those fulfillment centers will be more conducive to LTL type quantity shipments.
We certainly believe that we've already been winning business in that area and can continue because to be able to maintain and manage inventory quantities and the number of SKUs that they want to have in those facilities, you've got to have tight inventory controls, and that requires confidence in your carrier to deliver on time and without damage. Certainly, I think we've proven that we do that better than anyone. I think that we'll be able to continue to participate in that element of business continuing to give us a little market share.
Got it. That's really helpful color. I just wanted to touch, for my last question, on the operating ratio. I know this is obviously, you guys have addressed this a bit, but really impressive on the cost front. Is it appropriate for us to be thinking about a sub-80 operating ratio as kind of the new plateau? Would it be a surprise to see that tick back up if congestion returns to highways and that sort of thing? In the past, you've occasionally provided a view on where you expect incremental margins to be. I think you've kind of talked about something in the 25% range. Should we be looking for a step up based on this quarter and just the impressive performance you're able to deliver?
I mean, certainly there will be some costs that will come back into the business, and we'll be prepared for those. There should be other cost savings opportunities. Keep in mind, with the big drop in revenue that we saw, typically when you look long term, it's the density, the revenue per service center factors, as that has increased, the operating ratio has improved. When we look at individual service centers and regions around the country, we know that we've got ongoing opportunity to improve our operating ratio. It really is driven down to the service center level. When you look and think about all the dollars that we've invested over the years in expanding our door capacity, and then the individual opportunity to improve the service centers ratio, all those 238 service centers roll up into the company average.
You might have some that we've just expanded and maybe hurt the operating ratio. You've got a much larger group that we're leveraging all the fixed costs there because we own most of our facilities. It gives us confidence that we can continue to drive this operating ratio lower once the density factors come back. It's the density and the yield, and both of those generally require a positive economic backdrop to support each. Those are the two key factors, really, to drive long-term operating ratio improvement. We're going to continue to focus on those. It's a matter of managing revenue quality and cost. We've got to consistently do both.
We've got to continue to look for ways that we can keep our cost inflation low, while continuing to also give the service to our customers that provides value and allows us to get the consistent rate increases that we need as well. This just continues to build on itself and also allows us to do the most important thing, and that's taking care of our employees and keeping them motivated, keeping them engaged to continue to give service, to be productive. That employee and our family culture that we have is really what's been driving our long-term success, and we want to make sure that we don't miss out on that element as well.
Great. That's really helpful. Thanks for the time.
Our next question will come from Amit Mehrotra with Deutsche Bank.
Thanks. Hi, everybody. All the good questions have been asked and answered, so I guess I'll have to ask a couple of bad ones, so forgive me. I just want to think about the sequential. I know OR is an output of various moving parts, and as I think about the sequential movement from Q2 to Q3, I just wonder why the output won't actually be more challenged, especially given what's happening on the weight per shipment side. Correct me if I'm wrong, Adam, you mentioned that weight per shipment was volatile, but then maybe went down towards the end of the quarter. As shipments are going up, weight per shipment's coming down, you're adding resources to serve the shipments. Wouldn't that represent, it's maybe overly simplistic, but doesn't that represent maybe an incremental headwind on the OR as we think about the moving parts?
If you can talk about that.
Yeah. Certainly there are a lot of moving parts right now as we work our way through this environment. Yes, sequentially, the weight per shipment is coming down. It's up on a year-over-year basis. Our weight per shipment was pretty low last year in the third quarter. I think that we'll continue to keep our focus on maintaining our revenue quality, and if we can keep that revenue per shipment high, which we have no intent to change anything related to our pricing philosophies. A little bit lower weight per shipment, if you've got the same cost per shipment to handle, then that can put a little compression on that individual shipment's margin.
Again, getting the leverage from the revenue growth, like we talked through earlier, if you just sort of run out for the quarter, kind of this trend that we're seeing in July, you'll have significant improvement sequentially in revenue. The leverage that can come from that is significant and should offset any other type of challenge that we have. Typically, our overhead costs average 20% to 25% of our revenue. In the second quarter, they were about 24%. That's a period with revenue weakness, and even though the aggregate costs, absolute costs, were lower on a year-over-year basis in the second quarter, and they were lower in the second quarter than the first, that's some of the action that we took. We obviously saw a lot of the increase in those costs as a percentage of revenue due to the revenue weakness.
Sequentially, if we can show that improvement and not increase those overhead costs, you're going to get a lot of leverage there, and we'd expect to be able to work that 24% back down closer to the lower end of the range. Certainly would be the idea. We've just got to keep the focus, and I can assure you we will, on maintaining all of our labor to revenue statistics, all of our productivity across all areas of the operations. That's the biggest cost element that we have. Again, when density comes back into the network, as we were talking about our line haul cost earlier, that should improve that line haul cost that's more semi-variable.
The density coming back in the revenue, certainly that should give us much more opportunity than any other pressures related to a little bit lower weight per shipment should present.
Yeah. Okay. I don't know if I missed it, did you talk about year-on-year tonnage in July? I wasn't sure if you had mentioned that or not.
Well, I just generally said, because July is not done, and we got out of the habit of giving the number in the middle, and even though we got two days left. Given an intra-month exact number and then the comparison that that created and sometimes panic or sometimes exuberance that maybe neither was warranted of the change between the day of call and then what the actual number was. I kind of talked around it, I guess. The revenue is down about 3%, sort of plus or minus at this point. We'll see where we end up with these next two days of revenue. The weights somewhat in that, the weight per day is somewhat in that same ballpark. That's continued to show improvement from where we were in June. July has been a really strong month.
Typically, July is a month that the revenue falls off a couple of points from June. To see the revenue continue to accelerate, and we've actually got revenue per day that's higher in July, certainly that's a big benefit and provides us with a lot of encouragement as we go through the third quarter to see that these trends continue. Usually July is the weakest month of the third quarter. We'll continue to see how these trends play out, but certainly gives us a lot of encouragement to see our customers continue to reopen their business, to increase the levels of business they're giving us, and some of the new wins that we've been able to create while our sales team hasn't even really been able to be out on the street making sales calls.
It's been a coordinated effort, and our sales team, got to give them a lot of credit for having to change the way they operate, how they communicate, but the coordination between our sales, cost, and pricing team, and continuing to stay engaged and strengthen the relationships with our customers. I think that's a big piece of not only our long-term numbers, but the improvement that we're starting to see as we go into the third quarter.
Okay. All right. Thanks for the update. Appreciate it. Yeah. Go ahead.
Let me add to that. We saw our revenue trends start to improve in June, and so far through the month of July, they've continued to be very consistent, and they look good down the line. If you look at revenue per shipment, weight per shipment, per hundred, and all those different things that we measure from a revenue standpoint, they're all consistent and look very good so far. We hope that trend will continue. We're encouraged by it, not concerned at all. We're very encouraged at this point.
Okay. Good stuff. Thanks so much.
All right. Next question will come from Jordan Alliger with Goldman Sachs.
Yeah. Hi, just a big picture question. Your service standards have always been a tremendous part of your competitive advantage in the LTL space. I'm just wondering, the industry itself, or is the competition catching up or doing things in the right direction that does that impact the gap between you and the competition, or is it still heads and tails above everyone else if the competitive advantage generally remains?
Yeah. Jordan, let me say, first off, everybody has service standards. While in a lot of cases, they're very similar carrier to carrier, ours, I think are in line with most of our competitors or better. Service runs a lot wider gamut than just A to B on time, and there's a lot that goes into service. I think that's where OD excels compared to our competitors. If you look at all the things that we've done over the years, and we talk about the low claims ratio, but that's a big part of it. A to B on time is a big part of it. Our employees are engaged. They know what their role is as it relates to service, and they execute on that role every day.
Whether it's a dock worker or the person that answers the phone in the office and talks to our customers, how they deal with our customers, making timely pickups, making appointment times, all of those things. There's just an awful lot of elements that go into service, and I think we measure up far better than our competitors on a day-to-day basis. That's why I think when we sometimes lose business over price, but it comes back because of service and at the end of the day, we're getting it back and we're getting it back at our price. There's an awful lot that goes into that. We put a lot of work into that over the years, and it's paying off. We will continue to focus in that area and continue our commitment to our customers. It does make a difference.
I hope that answered your question.
Yeah, that's very helpful. Thank you.
Our next question will come from Ravi Shanker with Morgan Stanley.
Hey, guys, this is Christyne on for Ravi. Thanks for squeezing me in here. Maybe circling back to some of the commentary around e-commerce and sort of a tangential theme to that. Are you guys seeing any or do you expect to see any sort of blurring of lines between the LTL and TL operations kind of moving forward over the next couple of quarters and years as length of haul seems to be shortening on the TL side and on the LTL side seems like the shipments are getting a little bit heavier? Are you guys seeing any, again, more blurring there?
No, not that we can tell, to be honest with you, no. Yeah, certainly, I think as suppliers try to get closer to their customers, the TL length of haul would get shorter, but we haven't seen that trend at all in our business. Our length of haul has been very consistent over the last several years, and to be honest with you, if anything, we've seen a little bit of an increase of late. If there's blurring of the lines, we can't see it. There's still a pretty big distinction there.
Got it. Okay, that's helpful. Then maybe, just one follow-up, sort of bigger picture. Has the strategy evolved at all in the last couple of months around electric vehicles, whether that's in P&D or maybe some shorter haul, other shorter haul operations for you guys with some of the developments that we've seen from the OEMs in the last couple of months here?
Well, let me say this, I don't think that technology has evolved to the point that it's all that useful for us yet. There's still a lot of issues with it. I know we all hear, see, and read things that sound good, but I'm not sure the practicality in our particular company. The technology's not there yet. We can't make it work as it currently stands today. I think it'll continue to evolve, and I think there will be an application down the road and maybe sooner than later, but we'll just have to wait and see. There's still a lot of issues with it at this point, and hopefully, it'll get there, but it's just not there yet.
Got it. Understood. Thank you for the time.
That does conclude our question and answer session for today. I'd like to turn the conference back over to Mr. Gantt for any additional or closing remarks.
Okay. Thank you all for participating today. We appreciate your questions, and please feel free to call us if you have anything further. Thanks, and I hope you all have a great day.
Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.