Good morning, and welcome to the Old Dominion Freight Line, Inc. fourth quarter and year-end 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.
Thank you. Good morning, and welcome to the fourth quarter and 2021 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 9, 2022 by dialing 877-344-7529, access code 4631573. 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, we welcome your questions today, but we do ask in fairness to all that you limit yourself to just a few 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 fourth 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. Old Dominion finished 2021 with outstanding fourth quarter financial performance that resulted in new company records for annual revenue and profitability. The fourth quarter of 2021 was our fourth straight quarter with double-digit revenue growth and the sixth straight quarter of double-digit growth in earnings per diluted share. We are encouraged by the momentum in our business and believe that we are uniquely positioned to win additional market share in 2022. We can do this by continuing to execute on the same strategic plan that has driven our history of long-term profitable growth.
This strategy is centered on our ability to deliver a value proposition of superior service at a fair price to our customers. The OD family of employees worked through every challenge thrown its way in 2021 and continued to deliver best-in-class service while skillfully managing the 19.4% growth in our LTL shipments per day for the full year. I can assure you that delivering on time without damage is a significant accomplishment with this type of volume growth. That is why I'm so proud that in 2021 we once again earned the Mastio Quality Award, which recognizes us as the national No. 1 LTL carrier for the 12th straight year. Providing superior service not only allows us to win market share, it also supports our long-term pricing strategy.
We have consistently focused on improving our yields at the individual account level to both offset our cost inflation and support further investment in our business. This approach has helped strengthen our financial position over time and allowed us to do something that others in our industry have not, consistently invest in new capacity. We have historically invested 10%-15% of our revenue in capital expenditures each year, and we expect to spend approximately $825 million this year. We believe consistent and long-term investments in capacity are valued by customers as an integral component of quality service, and these investments are also necessary to support our ongoing market share initiatives.
We simply never want our service center network to be a limiting factor to growth, which is why we have spent over $1.8 billion over the past 10 years to expand our service center capacity across the nation. We currently have approximately 15%-20% of spare capacity in our network. Although our 2022 capital expenditure plan includes another $300 million to further expand our service center capacity to stay ahead of our anticipated growth curve. There are, of course, two other ingredients in the capacity equation, our fleet and our people. We intend to spend $485 million for new tractors and trailers this year. We would frankly like to spend more, but we have been limited by several suppliers that are facing manufacturing challenges.
We're fortunate to enter the pandemic with one of the youngest fleets in our industry, and as a result, we can continue to use existing equipment that otherwise would have been replaced this year. This strategy may continue to cost us a little more in maintenance and repair costs as it did in 2021, but we believe our current fleet and these additions will be sufficient to accommodate our expected growth. As we have done in recent quarters, we also expect to continue to utilize purchased transportation to supplement the capacity of our people and our equipment. The final ingredient and the most important piece of our strategic plan is the investment that we continuously make in our people. The OD family of employees grew by 20% in 2021, which, adding over 1,700 drivers in a challenging labor market.
We expect that 2022 will be another big recruiting year for OD. While the labor market remains challenging, we are confident in our ability to add to our team due to our outstanding company culture. In addition, we offer a rewarding pay and benefits package and soon expect to make company record discretionary contribution to our employees' 401(k) retirement plan. Our long-term strategic plan is straightforward, difficult for others to successfully replicate and builds on itself year after year. Our success over the years has proven the flywheel effect of our strategic plan, and we believe it will spin even faster in 2022. We are encouraged by the opportunities ahead, and we are confident that the disciplined execution of this strategic plan will produce further profitable growth and increase shareholder value. Thank you for joining us this morning.
Now Adam will discuss our fourth quarter financial results in greater detail.
Thank you, Greg, and good morning. Old Dominion's revenue grew 31.4% to $1.4 billion in the fourth quarter of 2021, and our operating ratio improved 270 basis points to 73.6%. The combination of these changes resulted in a 49.7% increase in earnings per diluted share to $2.41 for the quarter. Our revenue growth included a nice balance of increases in both volume and yield, which were both supported by a favorable domestic economy. We believe we are currently winning a significant amount of market share based on a comparison of our shipment trends with publicly disclosed information for other LTL carriers. Our LTL tons per day increased 14.3% and our LTL revenue per hundredweight increased 16.1%.
Our LTL revenue per hundredweight, excluding fuel surcharges, increased 9.2% due primarily to the success of our long-term pricing strategy, as well as changes in the mix of our freight. On a sequential basis, fourth quarter LTL shipments per day increased 0.1% over the third quarter of 2021, which compares favorably to the ten-year average sequential decrease of 3.5%. LTL tons per day increased 2.4% as compared to a ten-year average sequential decrease of 1.7%. These ten-year average trends exclude our 2020 metrics for a more normalized comparison. For January, our revenue per day increased 25.7% as compared to January of 2021.
This growth included a 7.7% increase in LTL tons per day and a 16.8% increase in LTL revenue per hundredweight. Our fourth quarter operating ratio improved to 73.6% and once again included improvements in both our direct operating costs and overhead costs as a percent of revenue. Within our direct operating costs, productive labor as a percent of revenue improved 320 basis points, which more than offset the increase in expenses for both our operating supplies and purchased transportation. The increase in our operating supplies and expenses as a percent of revenue was primarily due to the increase in the cost of diesel fuel.
We continued to use purchased transportation during the quarter to supplement the capacity of our workforce and our fleet, and we expect to use a similar amount of these third-party services in the first quarter. We are very proud that our annual operating ratio of 73.5% surpassed our previous internal goal of 75%. As we execute on a long-term continuous improvement cycle for our operating ratio, we intend to follow the same successful approach that we have in the past, which is to focus on density and yield. The spare capacity within our ever-growing network allows us to drive additional volumes through our system, which generally creates strong incremental margins at the local service center level. We are confident in our ability to further improve our operating ratio and have dropped our internal goal another 500 basis points.
As a result, we will now be focused on achieving an annual operating ratio in the sixties. Old Dominion's cash flow from operations totaled $340 million and $1.2 billion for the fourth quarter in 2021 respectively, while capital expenditures were $165.4 million and $550.1 million for the same periods. Greg mentioned earlier that we currently expect capital expenditures in 2022 of approximately $825 million. This total includes $300 million to expand the capacity of our service center network, although we would increase this amount further if we identify additional properties that fit into our long-term strategic plan. We would also increase our expenditures for new equipment if availability improves during the year. We paid $23 million in cash dividends in the fourth quarter.
While we did not utilize cash for share repurchases, our $250 million accelerated share repurchase program remained active during the fourth quarter. We utilized $691.4 million of cash for our shareholder return programs during 2021, and that consisted of $599 million for share repurchases and $92.4 million for cash dividends. We were pleased that our board of directors approved a 50% increase for the quarterly dividend to $0.30 per share in the first quarter of 2022. Our effective tax rate for the fourth quarter of 2021 was 25% as compared to 25.1% in the fourth quarter of 2020. We currently expect an effective tax rate of 26.0% for 2022. This concludes our prepared remarks this morning.
Operator, we'll be happy to open the floor for questions at this time.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will come from Jack Atkins from Stephens. Please go ahead.
Okay, great. Good morning, guys, and thanks for the longer-term color on the new operating ratio target. That's exciting. So I guess for my first question, if we could maybe kind of shorter term, kind of focus on what you saw in January. Adam, thanks for the trends from a tonnage perspective and a yield perspective, but anything that you could maybe add. Was weather the first couple of weeks in the month a little bit of a challenge. You know, we've heard that the rise in COVID cases in December and January presented some challenges for carriers. Just sort of curious if you could maybe comment on what you saw there sort of within the month, and I'll follow up after that.
Sure, and good morning, Jack. You know, there were several things impacting January. You know, certainly every January we deal with weather. It's not a one-time event, and it's included in all of our ten-year average trends that we typically compare to. Similar to the effect of COVID in certain months of last year, when you only look on a one-month period, you know, we did have some effect, we felt like both directly and indirectly with customers that were impacted through labor shortages and so forth. And so we saw a little bit of that impact as well during the month. We came off an incredibly strong December.
To talk about December first a little bit, just on a weight per day basis. December's tons per day was down 1.1%. Our 10-year average is a decrease of 9.1%. From a sequential standpoint, we felt like we were gonna see that buildup in December coming off November that had a little bit of some of these same effects that we talked about earlier. We expected that. But the timing of year-end also had a little bit of effect of both helping December and then starting out that first day of January being a lot softer. You know, we don't typically get into these half-day conventions and so forth like some others do.
I would just say that first day of the month was certainly not a full normal day like what we saw for the remainder of the month. You know, with all that said, we still grew revenue at 25%. We're really pleased to see that. We saw a continuation of the strong yield trends continue and solid volume performance given all the factors that we just discussed.
Okay. That's great to hear, and thank you for that. I guess maybe a longer-term question. You know, Adam, I don't know if you want to take it or if Greg wants to take it. You know, I would just be curious to get your sense for, you know, the trajectory of the growth rate for the LTL market more broadly, not just in 2022, but over the next several years. I think there's a sense that some folks have a concern maybe that some folks have that LTLs have benefited from all the supply chain disruption, maybe more so than others. There seems to be increased shipper demand for LTL capacity because of e-commerce and a number of other factors. You guys are investing for growth.
I would just be curious if you could maybe walk us through sort of your, maybe your longer term perspective for the LTL market, not just in 2022, but over the next several years.
Jack, I'll take a shot at that, and I'll let Adam add to this. You're right. From what we have seen and from talking with our customers, we expect continued growth. It looks like, if anything, this e-commerce is continuing to drive the LTL market. You know, the industrial economy's been strong and everything that we see on the horizon is we expect continued growth.
Hey, I want to roll back to the COVID question that you asked prior. Just for everyone's information, I'm sure somebody else intends to ask this, but we have seen our numbers go in the right direction over the last several weeks. I think it's important to note, I think we've heard the same thing on the news, you know, as to what's happening around the country. Our trend has been really positive the last few weeks, and our cases are really down. It looks like from our perspective, this thing could be dying out. You know, hopefully, that's happening everywhere. I think if it is, that'll sure be a boost to, you know, everything related to the economy and certainly to conducting business more as normal.
been a long time since normal, but hopefully, we can get back to that. I'll let Adam add to that, longer-term growth question.
Yeah, Jack, I would just repeat what Greg said and certainly feel like there continue to be tailwinds to the industry. We feel like the industry has already been growing above GDP and believe really that the industry as a whole could have grown more. The industry continues to be capacity constrained. That's why we talk about the service advantages that we have in the marketplace, as well as the capacity advantages that have driven much of our growth. We probably could have grown even faster this year, but it's something that you know we've certainly taken advantage of all the investments that we've made over time.
We've invested a lot in our network, over $1.8 billion the last 10 years, growing our door count over 50%, while our shipment count has grown over the last 10 years, about 70% or so. When you look at the other group of public carriers, there's been a decrease in the number of service centers in the industry. For that reason, the other carriers, the total shipments managed by the group is pretty flat as well. We'll see how that continues to trend. There's service value that we add, and I think our customers are starting to appreciate that more when they look through their supply chain in total in leveraging an LTL carrier's network.
It's why it's so important that we continue with our yield improvement initiatives to continue to have the financial strength to invest further in our system to allow us to continue to grow with our customers because that's a big piece of the overall quality equation and that service value that we deliver. They can call on us, and they certainly are doing so. When you look at our volume performance this year, customers are increasingly calling on us to deliver for them because of capacity shortfalls that they're experiencing through either other carriers or other modes.
Okay, that's helpful. Thanks again for the time.
Thanks, Jack.
The next question will be from Jason Seidl from Cowen. Please go ahead.
Thank you, operator. Greg, Adam, and team, thanks for taking my questions. Wanted to focus a little bit on the yield side first. The numbers you gave imply probably the largest sequential 1Q increase we've seen in a little bit of time. Wondering if you could talk about contractual rate renewals and how they trended in 4Q and how they're looking early on. Then I want to chat a little bit about your length of haul growing again in 4Q. Is that the type of business that you're winning out there in the marketplace, or is there something structurally going on in the marketplace to lengthen that LOH that you're seeing?
Yeah, I think that, you know, on the length of haul, just to address that piece of your question first. You know, it was a little bit longer. We were at 944 miles in the fourth quarter, but, you know, we've been around 935 to 945 miles. When you look longer term, we've seen length of hauls decrease. We've certainly seen this regionalization of kind of going back to the longer term question. We believe this regionalization of the industry will continue, and we're seeing good growth in our next day and second day lanes. But, you know, the last couple of years, there's been pockets of growth in different places.
We've had tremendous growth off the West Coast, which typically has a little bit longer length of haul with it. There's just been some different growth and in different areas with certain customers that it's moved it up a little bit, but it's pretty much staying within a fairly consistent band, and wouldn't really expect any material change from where we are other than eventually getting back to seeing it decreasing a little bit. With regards to the yield performance, you know, for us, we have a long-term consistent strategy that focuses on trying to achieve yield improvement to offset our cost inflation each year.
We need cost plus because again, it gets back to supporting the investments that customers are demanding from us in additional real estate capacity as well as into our technologies as well. From a revenue per shipment standpoint, just getting away from the per hundred, because certainly some of those metrics, the change in weight per shipment, the change in the length of haul both had the effect of increasing the revenue per hundredweight. Our revenue per shipment excluding the fuel was up 6%. You know, that was a good performance. Overall, we had to see some higher renewals kind of in the back half of the year.
Our cost inflation on a per shipment basis in the back half of the year was a little bit higher than what we had anticipated the average cost per shipment for the full year would be. We'll see that trend a little bit higher in the first half of next year and then kind of normalize. Certainly, we're continuing to get increases to offset that cost inflation. Those renewals in the back half of this year have probably been a little bit higher than those in the first half of 2021, that is. You know, it's always just a continuous improvement cycle that we have.
We look at each account on its own operating merits, the freight that we get, and ways that we can improve yield. That's not always through price either. You know, I think we've been successful. Certainly when you look at that revenue per shipment and cost per shipment delta in the fourth quarter and really for the full year as well just reinforces that long-term consistent approach that we've strived for.
Appreciate the color. Thanks for the time again.
The next question will be from Scott Group from Wolfe Research. Please go ahead.
Hey, thanks. Good morning. Adam, can you share the yields, the yield trends ex fuel in January? Then any thoughts on just that one Q, OR seasonality and how you're thinking about that?
Sure. Per hundredweight with the fuel, as we said earlier, was between 16.5 and 16.8%. Without the fuel is right at 11%. We're still seeing you know, increasing rates really on the average price per gallon. As that increased through the year, it's the average in January was up about 39% versus January of last year just for the national average there. That fuel price component is certainly picking up and going into both that revenue component, but also getting into the cost as well. Certainly, you know, there's more than just the direct cost of diesel fuel that we use in our operations.
As fuel prices go higher, that certainly works its way into tires and other components that you know we have to deal with. Anything that's sort of fuel related, we'll see that same type of inflation on. With that said, in regards to our costs, typically the fourth quarter to first quarter sequential is about 100 basis points deterioration. Now one thing to say before I get into you know a little bit more detail about that is typically that includes kind of a flattish when you look at the insurance and claims line kind of flat performance from Q4 to Q1.
We had a benefit in the fourth quarter, as you could see on that insurance and claims line, and that mainly comes from the actuarial assessment that we do each year. That was only 0.7%, where we averaged 1.1%-1.2% the first three quarters of 2021. We expect that number to go back up to about 1.2% in the first quarter, give or take. We've got a little natural drag, if you will, versus our normal sequential performance, if you will. With that said, however, we're still targeting about 100 basis points of change there. You know, plus or minus, certainly that's just one specific number.
I think that, you know, given the strong revenue performance, I think that we can offset much of that. Maybe 80-120 basis points is, you know, to give us a little range there, will be what we're trying to target achieving in 1Q. Certainly the 1Q performance, when you look at the average, you know, a lot goes into that. The revenue effect, like we mentioned earlier, can be a little different from one period to the next. You know, certainly there's the cost that come in. There's not as consistent performance from 4Q to 1Q like there is in maybe some of the other quarters, just given the natural disruption that happens in those periods.
That natural disruption goes into that 10-year average.
Very helpful. Then just last one. If I look over the last 5 years, your operating ratio has improved about 200 basis points a year on average. Do you think that's, you know, a realistic way to think about either 2022 or the next several years? I'm just trying to think about, you know, when realistically you can get to that sub-70 OR.
Yeah. Well, we didn't put a timeline per se on it because, you know, really we're looking for profitable growth each year. You know, some years we get a little bit more revenue contribution, some years we get a little bit more margin contribution. They all go into that profitable growth line. You know, we pretty much played 2021 like a piano and got a little bit of both revenue and margin. We were pleased to see that, and that followed a very successful 2020. The five-year of 200 basis points is probably a little bit stronger given the performance in 2018 as well. When you look over a longer term, you know, it's been more in the 100-150 basis points.
You know, we talk about ten-year sequentials from quarter to quarter, and that's probably been more in that long term. You know, right now, demand continues to be incredibly strong, so we certainly are expecting another very solid revenue performance year this year. We're gonna be investing dollars, investing significantly for headcount growth, as Greg mentioned, so we can continue to give the same service that our customers expect. We're gonna be adding to our fleet and adding to our network. There's a lot of investment that goes into continuing to take advantage of the market share opportunities that we feel are out there.
You know, we're not gonna give a specific goal for what we think we can do in 2022, but certainly the focus will be to produce as much profitable growth as we can.
Appreciate the time, guys. Thank you.
The next question is from Jordan Alliger from Goldman Sachs. Please go ahead.
Yeah. Hi, Greg. I'm just very curious-
LTL, you do start to face some pretty tough comparables as you get into the second quarter, particularly around volumes. If industrial production grows 3.5%-4% this year, I mean, how do you think about high level sort of ability to grow tonnage? I assume on a full year basis, but looking past the first quarter to the second, how you may be thinking about those more challenging comps? Thanks.
Yeah. Jordan, you broke up a little bit, so I don't know if I missed anything at the start. Just in regards to the volume environment, again, it just gets back to the underlying strength of demand. Certainly that's all the customer feedback that we've been hearing, you know, coupled with capacity issues and other places of our customer supply chains. When we look at the economic trends, we feel like that we would expect continued strength with our industrial related customers, as well as the ongoing strength with our retail related customers as well. You know, we're used to tough comps, if you will.
You know, given our long-term revenue performance over the last 10 years, it's pretty much we've produced about 11% average growth in revenues. Even though we'll follow up what would have been a record growth year of $1.2 billion of new revenue produced last year, we certainly have got big expectations for 2022, just given all those factors. You know, we'll see how the comparisons work out. You know, I think that if you just assumed normal sequential trends, you know, that would still put us at kind of the high single digit, low double digit type range.
Thank you.
The next question will be from Tom Wadewitz from UBS. Please go ahead.
Yeah, good morning. Wanted to ask you about, I guess price, and I don't know if you want to refer to, like, contract renewals. You know, I think you saw some acceleration in price through the year-end 2021. You know, maybe you see that stay elevated in first half and kind of ease in second half. Wanted to see if you could offer some kind of high level thoughts on maybe where contract renewals were in fourth quarter and what you think the profile looks like on price in 2022. Then I had a follow-up on a cycle question.
Yeah. Tom, we’ve kind of just stopped talking about contractual renewals because I somewhat feel like, you know, that’s obviously a very big piece of the overall revenue equation. About 25% of our business is on our tariff business and certainly the majority being on contract. It seems like it’s a talking point from the others in the industry that doesn’t always reconcile with necessarily what you see out of the yield performance. You know, it all just sort of goes into it whether it’s price increases other operational changes that drive yields and so forth, and the things that we look for. You know, I will say that like I mentioned earlier we expect our
We saw higher cost per shipment in the back half of last year. We expect our cost per shipment this year to probably be on a net basis, maybe in the 4.5%-5% range, and that's excluding the effects of fuel. It's gonna be weighted heavier. We're gonna see higher cost per shipment inflation in the first half of the year and then think that some of those expenses normalize when we get into the back half and start lapping over where we've recently been seeing you know, inflation in our business.
You know, with that said, certainly the contracts that mature in the first half of the year, they didn't have as much of an increase last year, so they will probably get a little bit more. Then those in the back half that maybe got a little bit higher increase reflecting what the actual cost trends were in the back half of 2021 may not see as much. Overall, you know, the focus continues. We've got to look at how our cost inflation is trending and then try to target 150 basis points above that. We did the January numbers, I didn't mention this earlier, but we did take our general rate increase, which is on our tariff business.
That was effective the beginning of January. That was a part of that yield performance that we've already seen to start off the year.
you think you move back in second half of the year towards kind of more normal annual LTL pricing, call it mid-single digits. Is that a reasonable expectation if you look towards kind of second half of the year?
Well, again, I think that, you know, we've got to look at how our cost inflation at that time is trending. You know, if we're seeing some normalization in that point, then the expectation comes back. At the end of the day, we've got to look at each customer's account, the revenue inputs and the cost inputs in terms of what we're actually seeing and how the account is operating, and look at ways to drive improvement in that customer's operating ratio. You know, if we can do that by price, that's one way to look at it. If there may be other operational changes, new pieces of business that we may get, different factors that can overall drive an improvement.
For us, we're looking at driving a continuous improvement cycle in each customer account, and that customer account builds up to each individual service center and those build up to the company. Certainly we're looking to improve the operating ratio and that's how you got to go about tackling it.
Okay, that makes sense. If I can ask one more, I guess for Greg. How do you think about the cycle and with respect to it? It seems like historically you probably have, you know, some giveback in a cycle where you've had strength in LTL and a tight truckload market, and then truckload loosens, that there might be some impact in the cycle historically. Do you think that it is reasonable to expect that this time? I mean, it does seem like LTL has been the one mode that could add capacity, and it would be natural to think some LTL freight in the market, maybe not for OD, but in the market, goes back to truckload later this year or next year. You think that's right, or is that, is it gonna be different maybe this time?
Tom, I can tell you, we don't have any volumes at this point in time to go back to truckload. I think if you you know look at what we've done and what we've been able to take out over the course of time due to capacity restraints and whatnot, most of those type volumes are out of our network at this point in time. I think the environment for us from that standpoint is extremely positive, as far as we can see through 2022. You know, certainly things change as you go through the year. Right now I don't see any volume going over to truckload at all, not from our standpoint. You know, as Adam has mentioned numerous times, you know, we're continuing to add capacity.
You know, I would expect that we'll be on a strong trajectory all year long.
Right. Okay. Thanks for the time.
Thank you. The next question will come from Amit Mehrotra from Deutsche Bank. Please go ahead.
Thanks, operator. Hi, Greg. Hi, Adam. Adam, I just wanted to clarify one question, I guess from Jordan earlier. You talked about high single digit, low double digit. Maybe I didn't catch it. Was that first quarter, full year? Was it tonnage? Was it shipment? What were you exactly referring to on high single digit, low double digits?
I wasn't giving any specific guidance there. I was just basically saying that if you assume normal sequential trends in our tons that would about be, you know, if you just roll them out quarter by quarter what the year might look like. Certainly, you know, at this point, you know, we feel like just like what we saw last year, that you know, the demand is so strong out there. You know, we'll see how the year progresses. You know, in the past, we've typically had you know, probably about 6 quarters or so when you look through past growth cycles.
We typically have had six or so quarters where we significantly exceed our ten-year trends, and then it kind of reverts back to the average. You know, the average sequential performance for us includes a lot of market share wins. Going back to my previous comment, we've grown our shipments over the past ten years around 70%. Those ten-year trends include a lot of market share. We certainly think that, given the comparison of our volumes that we've seen to the industry for the third quarter, you know, that's kind of the way things have trended.
We have this spare capacity that that's out there that we try to invest ahead of the curve, so that the network is not a limiting factor and we can help our customers grow when we get in these strong demand periods. We'll see how the quarter-by-quarter trend as we work our way through 2022. The one thing we'll say is that the underlying demand has not changed. It was consistently strong through 2021, and the customer conversations that we have today indicate that that strength is gonna continue for the foreseeable future.
Yeah. That was just more a tonnage commentary by extrapolating current trends and kind of where the year shakes out. Okay, I get that. The other question I had is incremental door capacity in 2022. Obviously, all this new capacity that you're putting online doesn't come on January first. Any help around what the kind of, you know, incremental door capacity is from these investments, pro rata for when they actually come online in 2022 and even 2023, if you could talk about that.
Yeah. We, you know, I think we've said before that we intend to add somewhere in the neighborhood of 8-10 service centers this coming year. You know, we don't necessarily always share the door detail, for example. When we look, we don't give it year by year more for strategic reasons. If you look over the last 10 years, we've expanded the door count by about 50% in total. You know, as Greg mentioned before, we've got about 15%-20% spare capacity in the network. We are fortunate that we started out the 2021 in a really good spot.
Despite the 19.4% growth that we had in shipments during the year, we were still able to keep a fair measure of spare capacity out there. We'll continue to build on that level. We've got a few openings that will happen earlier in the year. Those were projects that already had been in the works and some that we thought we might have been able to finish by the end of the year. We'll get some new capacity out there on the service center side pretty early, and we'll be adding to it, you know, pretty consistently throughout the year.
Okay. I wanted to come back, I think to Scott's question on long-term margin improvement. I wanna kind of approach it a little bit different way if I could. I mean, Adam, you've talked about, you know, direct and indirect costs as a way to kind of articulate the inherent operating leverage in the business. I think it was like 25% previously. You've obviously made. You know, the cost structure looks different now given the progress that you made in the pricing initiatives to a certain degree. But I'm wondering, it seems like the new baseline operating leverage is kind of 30% plus versus that 25%. I don't know if you'd agree with that or if that's the right baseline to use that can maybe help infer our, you know, our pace of margin improvement going forward.
Sure. Yeah. We've talked about the cost structure in previous quarters. You know, effectively our total direct costs for last year were about 55% of revenue, and our overhead was around 19% of revenue. Some of that overhead, maybe 5%, is also variable in nature. When you look at the total variable cost and that structure, that revenue growth can give us the incremental margins in the 35%-40% range in a short period of time. Certainly we did, I think 39% for all of last year. You know, really strong operating leverage year for us. You know, our story, like I said, it's not just all margin improvement.
We want to continue to build up the network to take advantage of the market share opportunities we feel are out there, and we wanna keep growing the top line, which takes investment. We know that we need to continue to invest to keep taking advantage of that revenue growth opportunity. That may cause some quarters that you know the incremental margin might not be in that 35%-40% range, and that's okay. That's why we don't manage the business to an incremental margin per se.
We're gonna do the right things right that we feel like build out the network to allow us to keep achieving the top line growth and have the ultimate effect of also driving long-term margin improvement for us.
Great. That makes sense. Okay, thank you very much. Appreciate the time.
The next question will come from Jonathan Chappell from Evercore ISI. Please go ahead.
Thank you. Good morning. I'm just gonna combine a couple into one because they're kind of all related. Adam, ton of talk about market share on this call and in the press release. Is there any way to quantify how your market share, how much you've taken effectively from the LTL pie over the last, call it five years? As you look at your service center growth for this year, and I'm sure you're not completely in tune with what everyone's doing, but you probably have a pretty good sense for the market, you know, how much do you think that you're set up to take this year?
The second part of it is, as you think about these market share gains that you've won, especially in the last 12 months, have these been kind of just traditional contract duration, traditional customers? Or given the tightness of capacity across the entire logistics sphere, are you winning kind of longer term contracts, new types of customers, as you've taken share recently?
Yeah. I think our biggest wins have come from our ability to service the customers, you know, as they see the need. I mean, a lot of our competitors just haven't been able to provide the capacity that we have, and that's my opinion as to why we've taken the share that we have. Just to get back to that, share growth over the last five years. Adam, you may need to help me here, but I would say it's pretty fair to say we've been growing about that share about 1% a year. You know, it's kind of a creep, if you will. It's not really a, you know, a leap by any stretch, but it has been very consistent, and we continue to see that as we go.
As far as the service center network and whatnot, Adam mentioned, you know, we're looking at 8-10 this year. We've got quite a few in the process now. The good thing is some of those are fairly large. There's a couple big ones in there that'll give us quite a few additional doors. So I think we're gonna be in a good spot. We, you know, as I've mentioned over the last several years on all of our calls, I think, you know, we talk about the places where we're challenged, and, you know, we still got places that are a challenge to expand and, you know, whatnot. But we do have some good ones working, and I think we're gonna be better off as the year progresses.
We'll see how the growth trends and what not, but I think we're in a really good spot and I'll expect that work is gonna pay off for us.
Great. Thank you, Greg.
The next question will come from Todd Fowler from KeyBanc Capital Markets. Please go ahead.
Hey, great. Thanks, and good morning. I was wondering if you could comment a little bit, you know, headcount spend growing faster than shipment count for the past couple of quarters, and I understand there's probably some catch up there. What's your expectation for headcount growth into 2022, and also relative to shipment count? Just any general comments on labor availability. Thanks.
Yeah, Todd, certainly we're trying to add labor as we speak. It has been a challenge, as I've mentioned before, but we have been able to successfully add folks. Right now we have needs. Certainly, as we get into the stronger parts of our season. Later in the spring and certainly through the summer and into the fall, we need to continue to add folks without a doubt. I would expect that those trends would pretty much mirror our shipment growth and tonnage growth. I don't expect that to be a whole lot different. Yes, we need to add and you know, those efforts are certainly underway at this point.
Greg Gantt or Adam Satterfield, could you care to kind of put like a finer point? I mean, should the spread between headcount growth and shipment count start to narrow? Or do you expect to continue to try and add in front of the shipment growth for the next, you know, kind of foreseeable future?
Yeah, I think that, you know, we finally just sort of caught back up with it at the tail end of 2021. You know, we would expect to see probably the headcount a little bit stronger than the shipment count, you know, certainly probably for the first half of this year. You know, when you look over the longer term, those two numbers kind of work in concert with one another. They're pretty matched evenly. You know, I think that really the top line is what dictates it, Todd. You know, certainly last year, really going back to 2020, once the recovery began, which for us was in May, you know, we were pretty much playing catch up.
We've had this tremendous volume performance, you know, really unlike anything we've ever seen, with the fourth quarter being higher than the third. I mean, just really tremendous recovery since that drop in April of 2020. We've continued to add people, really at levels above what the normal sequential trends in headcount would be. I think that'll continue in the first quarter until we get back to the levels where we can support the freight that we're seeing. We've got to match it too with the equipment base that we have. It's just something that we've got to manage through as we work our way through the year.
As long as we keep seeing that top line performance and strength coming at us, we're gonna continue to try to hire and have the right people in the right place that is, you know, efficiently operating, keeping our service metrics best in class and taking care of our customer. The lever that we'll continue to pull, and we think that we'll have to keep using this in 2022, will be the purchased transportation. You know, we've had to utilize that, I think probably every quarter as we worked our way through last year. We talked about trying to get away from it, and ultimately, we do.
We want that number to revert back to that old 2%-2.5% that you know was there for our Canadian operation and our truckload brokerage business where we've got 100% of our line haul network insourced and we're using our people and our equipment to service our freight. Until then, we've got some good partners and you know they're continuing to deliver within our service expectations and keep our service metrics best in class and really just helping us to be able to grow the top line. We'll continue to pull that lever while we have to.
Well, Adam, my follow-up was on purchased transportation and kind of the expectations and the service. You covered that one for me. I'll pass it along. Thanks for the time.
Thanks, Todd.
The next question will come from Bascome Majors with Susquehanna. Please go ahead.
Yeah, thanks for taking my questions. On the real estate expansion, as some of your peers become more eager to invest in growth like you've been doing for quite a time here, are you starting to see more competition at the locations that you'd like to expand in? Or is it really just you versus broader industrial real estate?
Yeah. It's certainly the latter, Basem. I don't know that it's the competition for real estate, generally speaking. It's just being able to find the real estate that we need and being able to get it zoned and get the building done. Sometimes you can find the land and, you know, it's the hoops you've got to jump through to get it zoned and meet all the building requirements and all those different things. Trust me, there's a lot of challenges out there from a real estate standpoint. It's not easy. As we've grown and as we require bigger and bigger facilities to meet our needs, you know, and to plan for years down the road, it's just gotten more and more difficult.
Certainly there is some competition in certain locations, and I've talked about that numerous times before. The competition in certain markets is definitely tougher than others. Some places, you know, it's still relatively easy. You know, we can find and meet our needs. There are some that again, they're rather challenging, if you will.
You know, to that point, you mentioned a couple of locations would be particularly large adds this year. Can you talk to the geography or timing of those?
Yeah. One of those is in the Northeast that we've owned for several years now. It's been occupied, tied up with a lease. We should get that late this year sometime. It's up in northern Pennsylvania. We own it today, but it's not available for the time being, but we will get it, I think, about midyear. We'll probably have a little work to do to get it up and running, but that should come online late this year. We've got another fairly large facility in southern Minneapolis to help us better serve that area. We're up on the north side now and certainly with the growth that we've had in that market, we need to have another facility in the south. It's getting close.
I think we're just a couple months away from opening that. We're working on a big one that's well underway in Kansas City that'll give us another additional fair amount of doors. We've got a lot of irons in the fire around the country and a lot of good things working. Again, I think we're pretty well-positioned from that standpoint. Got a few others that I'll probably rather not talk about at this point, but lot of work going on in the real estate department, that's for sure.
Thank you.
The next question will be from Ken Hoexter from Bank of America. Please go ahead.
Hey. Great. Good morning, Greg and Adam. Thanks for getting me in here. Just real quick, Adam, to clarify your target. You said moving from 75 to 500 basis point improvement to 70, and then you talked about sub-70. Can you just kinda clarify what the target is and outlook there?
Sure. It's, I mean, 70% is the target, but we wanna see something start with a 6. It'll be a, you know, 69% or whatever we get to when we cross that line. We obviously blew through the 75% this year pretty strong and have got a good jump on making our way towards that 70% goal. Nevertheless, that's the goal, if you will, at a raw 70%, but seeing an OR start with a 6.
I think it's still fairly balanced between pricing and costs just as you've been doing. But you mentioned in the opening comments some maybe seeing some scaling of maintenance cost increases as you kinda extend the life of the fleet. Can you talk about the impact of that we should see in the near term or this year?
Well, I mean, there's some trade-off there. When you look at the depreciation expense, for example, we're seeing some improvement there. That was at 4.7% of revenue. You know, that typically runs quite a bit higher. You know, we're seeing some increased maintenance costs, if you will, to maintain our fleet. Our average fleet age is up to five years. Now for our power equipment, it's been as low as 3.5 years, when you look over the last five-seven years or so. It's certainly a bit higher than what we would like to see.
There's also a little bit of a drag, just in total operating supplies and expenses on the fuel element. The older equipment's not as fuel efficient, as the newer equipment. So, you know, that's just something that we've gotta keep balanced. We'll probably see once we can start replenishing the fleet at the levels that we would like to, we'll see some incremental depreciation costs that will come online that will somewhat offset you know the costs that we're seeing in operating supplies and expenses. But it'll offset some of the purchased transportation costs that we're seeing. Certainly, I'm sure you're familiar with the truckload rate environment is pretty strong right now.
Those loads that we are moving with third parties, we're paying a pretty fair price for.
Lastly for me, just Adam, I know you said that the peers hadn't been growing kind of looking back, but you know, I guess somewhat backward, I thought we've heard a lot from the carriers. They're starting to talk about growing real estate, even ArcBest, XPO talking about doors and service center adds that we hadn't heard in a while. Does that give you or Greg any thoughts on potential pricing pressure that we haven't seen in the past?
I wouldn't. I don't think so.
Yeah.
I don't think so. We just gotta keep doing our thing and providing value to our customers. I don't see that as a negative, certainly. Generally speaking, you know, I think that I can't speak for everyone, and we don't really know other than what we hear from customers. We anticipated that we would see capacity issues with the industry this year just based on some internal computations that we go through. We started hearing that you know before we got to midyear, before the real rush began. You know, I think that there's probably some needs out there. Like I mentioned, we still feel like the industry is growing.
When you look over the last 10 years, there's been a couple of other carriers that have also increased their market share. I think that the industry revenue is continuing to consolidate with the larger national non-union providers. We think that trend will continue in the future. Certainly, you know, we've got service advantages as well, and it all comes back to the service value you deliver for your customer. We think we've got an unmatched value proposition that wins market share for us. We're gonna continue to execute and keep giving the very best service to our customers.
We think that that'll drive the market share and fill in the real estate capacity that we continue to expect to add.
Great stuff. Appreciate the time and thoughts. Thanks, Greg. Thanks, Adam.
Thank you. The next question is from Christian Wetherbee from Citigroup. Please go ahead.
Yeah. Hey, thanks for taking my question. You know, maybe just a follow-up on that last point about the market and competitive dynamics. I guess I'm just trying to make sure I understand how you guys might respond.
To the extent that there is, you know, maybe a larger push by some of your competitors into the market. You guys have always been, you know, extraordinarily disciplined with the way that you approach the market. I'm guessing in a scenario where maybe some of your competitors get a bit more aggressive to, you know, expand, and obviously there's a lot of demand out there, so I don't know that necessarily has an impact on the pricing dynamic. I guess, I think I know the answer to this, but I'm kind of curious your take on how you would adapt to a market which might actually see more, you know, sort of push for market share from some of your competitors than we've historically seen over the last several years.
Well, you know, I think what we'd expect, Chris, is that the industry has been very price disciplined, you know, really going back to the last slowdown in 2016. I think that we've seen some margin improvement by some of those other carriers. If they don't have capacity, you know, maybe they'll continue to follow our lead in terms of continuing to consistently try to increase price. When you look at the current environment, much of the revenue growth is coming by yield from other carriers. I go back to the third quarter performance. We grew our shipments 19%. On average, the public carrier group was up 1%.
That wide delta in volume growth, we want to have that volume contribution, and we've got the capacity to grow both volumes and yields. Whereas we've seen in prior growth periods, like 2017, 2018, what we've seen this year, or 2021 rather, the other carriers that don't have barely any capacity to grow throughout their entire system, just take advantage of the strong demand and increase yields. Which if they're increasing faster than us, 'cause again, our pricing approach is one that's long-term and consistent. Customers know what to expect. If other carriers are increasing their rates faster than us and closing some of that price gap, that service value looks better and better. You know, I think that's what we've seen in the past.
It's what we would continue to expect to see that wide outperformance, if you will, against the other public carrier group data that we see on average.
Got it. That's very helpful. Thanks for the time. I appreciate it.
The next question is from Bruce Chan from Stifel. Please go ahead.
Hey, good morning, gents, and thanks for squeezing me in here. I know you mentioned that there's no truckload freight to give back this cycle, and that's good to hear. As we think about some of your comments earlier, Adam, around you know, regionalization and secular growth in e-commerce, how are you thinking about your freight mix characteristics? Do you think you can kind of keep those as they are, or do you think there may be some pressures on you know, length of haul and shipment density as you start to you know, grow your share and expand your network over time?
Yeah. I mean, it's certainly, you know, we constantly communicate with our customers, including third-party logistics companies, to try to navigate through and foresee the types of changes that are coming down the line. That goes into some of our thinking in terms of how we expand our service center network as well and where we're building facilities. You know, we certainly foresee, you know, some of those changes that have been happening over the last five, 10 years continue. I think they've all been favorable trends for the LTL industry and I think we're certainly maybe benefiting more than anyone.
The reason for that, you know, some of how we think some of this market share growth we've seen recently will be very sticky is that there's an increased premium that's being placed on service quality. When you think about, especially as low as inventory balances are right now, you know, shippers have got to get their product on the shelves. They're increasingly relying on a carrier that can give 99% on-time service performance and not have damages. If you're delivering into one of the big retailers that have these chargeback programs in place, then it puts an even more importance, if you will, on that service value. That's how we're winning share in that retail segment of the market.
You know, certainly we've still got our healthy mix of industrial freight and think that will continue to grow as well. We're really winning across all segments, if you will, with direct industrial and retail-related customers and seeing tremendous growth with our third-party logistics customers as well. We think that those trends are gonna continue and the importance on total service value will continue to rise.
Thank you, Bruce. Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Greg Gantt for any closing remarks.
Well, thank you all for your participation today. We appreciate your questions, and please feel free to give us a call if you have anything further. Thanks, and have a great day.
Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.