Good day, and welcome to the Old Dominion Freight Line Third Quarter 2022 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 a touch-tone phone. 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 third quarter 2022 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 2nd, 2022 by dialing 1-877-344-7529, access code 332-4067. 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, and 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 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 third quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we'll be glad to take your questions. During the third quarter, the Old Dominion team extended the company's track record for double-digit growth in revenue and profitability. The third quarter of 2022 was our seventh straight quarter with double-digit revenue growth and the ninth straight quarter of double-digit growth in earnings per diluted share. These financial results reflect the ongoing strength and demand for our services as we continue to deliver value to our customers by providing superior service at a fair price. Consistently executing on this key element of our long-term strategic plan is critical to our continued ability to win long-term market share.
We were pleased to provide our customers with 99% on-time service and a cargo claims ratio of 0.2% during the third quarter. Service means much more than just picking up and delivering our customer's freight on time and damage-free. In fact, Mastio and Company conducts a comprehensive industry study each year that most recently measured carriers on 28 service and value-related attributes. We are extremely proud that Mastio recently named OD as the number one LTL provider for the 13th straight year. In this latest survey, shippers and logistics professionals ranked OD as number one for 24 of the 28 individual attributes. The consistency of our service performance over many years, as validated by Mastio, reflects the commitment from each of our team members who works hard every day to go above and beyond for our customers.
Our superior service performance has not only allowed us to win market share over the long-term, it has also supported our long-term yield management strategy. This simple strategy focuses on increasing our yields to offset our cost inflation each year while also supporting our ongoing investments in capacity. We have consistently invested 10%-15% of our revenue in capital expenditures each year, regardless of the economic environment. Investments in our fleet and technologies have helped us improve our operating efficiency and customer service, while the significant investments in our service center network generally support our growth. We have expanded the capacity of our service center network by over 50% in the past 10 years while doubling our market share, and we believe further investments will be necessary to ensure that our network is never a limiting factor to our growth.
We believe a big part of our value proposition is having available capacities when our customers need it the most. The capacity advantage we have in the marketplace was especially critical for customers that dealt with various supply chain issues over the past two years, while industry capacity was generally limited. We increased our revenues by over $2 billion over the past two years, which would not have been possible if we had not consistently increased our network capacity, which is why we remain absolutely committed to executing on the fundamental elements of our long-term strategic plan. As a result, we will continue to focus on providing customers with superior service at a fair price. We will also continue to invest in our OD family of employees, our fleet, and our service center network to support our long-term growth initiatives.
Old Dominion has the financial strength to make these investments, and as a result, we believe we are better positioned than any carrier to produce long-term profitable growth and increase shareholder value. Thank you for joining us this morning. Now Adam will discuss our third quarter financial results in greater detail.
Thank you, Greg, and good morning. Old Dominion's revenue grew 14.5% in the third quarter to $1.6 billion, and our operating ratio improved to 69.1%. The combination of these changes helped produce a 36% increase in earnings per diluted share for the quarter. Our revenue growth was due primarily to the 17.4% increase in LTL revenue per hundredweight, which more than offset the 2.6% decrease in our LTL tons. We believe this decrease in LTL tons reflects the overall softness in the domestic economy that has generally caused a decrease in demand for our customers' products. Demand for our service has remained strong, however, as customers are continuing to take advantage of our value proposition.
On a sequential basis, revenue per day for the third quarter decreased 3.8% when compared to the second quarter of 2022, with LTL tons per day decreasing 4.3% and LTL shipments per day decreasing 3.6%. For comparison, the ten-year average sequential change for these metrics includes an increase of 3.6% in revenue per day, an increase of 1.2% in tons per day, and an increase of 2.4% in shipments per day. At this point in October, our revenue per day has increased by approximately 8% when compared to October of 2021. This month-to-date revenue performance includes a decrease of approximately 7% in our LTL tons per day. As usual, we will provide actual revenue-related details for October in our third quarter Form 10-Q.
Our third quarter operating ratio improved to 69.1%, with improvements in both our direct operating costs and overhead costs as a percent of revenue. Many of our cost categories improved as a percent of revenue during the quarter. Although our operating supplies and expenses increased 300 basis points due primarily to the rising cost of diesel fuel and other petroleum-based products, as well as the increased cost for parts and repairs to maintain our fleet. We more than offset the impact of this increase with the improvement in our salaries, wages, and benefits, and purchased transportation. The improvement in these expenses as a percent of revenue reflects our best efforts to effectively match all of our variable costs with current revenue and volume trends.
Old Dominion's cash flow from operations totaled $514.2 million and $1.3 billion for the third quarter and first nine months of 2022 respectively, while capital expenditures were $181.7 million and $504.8 million for the same periods. We noted in our release this morning that our capital expenditures are now estimated to be $720 million for this year. The decrease from our prior estimate is primarily due to the timing on equipment deliveries that we expect to be pushed into next year. We will provide further details about our 2023 capital expenditure plans with our fourth quarter earnings release.
We utilized $345.4 million and $1.1 billion of cash for our share repurchase program during the third quarter and first nine months of 2022 respectively, while cash dividends totaled $33.4 million and $101.4 million for the same periods. Our effective tax rate for the third quarter 2022 was 23.9% as compared to 25.2% in the third quarter of 2021. We currently anticipate our effective tax rate to be 25.6% for the fourth quarter. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Jack Atkins with Stephens. Please go ahead.
Okay, great. Good morning, and thank you for taking my questions. I guess first, Adam, You know, I'd be curious if you could maybe give us the full stats for September in terms of tonnage per day on a year-over-year basis. You know, was there anything sort of unique kinda going on in September with regard to the end of the quarter with the hurricane? I guess just kinda wrapping up that September-October commentary, I guess, do you feel like that the sequential trends are the underperformance versus seasonality is maybe accelerating somewhat, and if you could maybe provide some color on sort of what's driving that. Anyway, I know a lot there, but just sort of curious on current trends and if you could provide some additional color there.
Sure. We'll test my memory, I guess, and see if I can remember all those. For September, looking at on a year-over-year basis, our tonnage was down 5.4%. Shipments, those were, let's see here. Shipments per day were down 6.8%. We had a little bit of an increase in weight per shipment for the month. It was up about 1.5% overall. If you remember, we've talked before about the weight per shipment trend. Last year, the third quarter was our low water mark, if you will, where we were at a total of 1,538 pounds.
We did start seeing a sequential increase from the third quarter to the fourth quarter of last year. That should somewhat normalize as we transition. Looking at things on a sequential basis for the tonnage, we did have in September about a 0.4% increase versus August. The 10-year average is a 3.9% increase. Similar, I think what we saw in the third quarter was similar to the second quarter. You know, we did underperform for the total quarter the average sequential trends in 2Q. We did again. This is the third straight quarter of underperformance, if you will. We started out with a decrease in July, which is pretty typical. We were down 4%.
The 10-year average is down 3%. We dropped a little bit further in August, which is normally about flat-ish. We just didn't see the, you know, the sizable increase that we typically do in September. You know, I will say that, so far, and obviously there's still days to be finished for October, but we looks like we are trending pretty much right in line with with normal seasonality at this point, which I think is an encouraging trend. Certainly, you know, a lot of of work left to do as we go through the the fourth quarter. Typically, we would see an increase in in November, and then it it drops off in in December.
Normally overall, you've got a decrease, you know, on average for the fourth quarter versus the third. Last year we did have an increase, which makes the comps quite a bit tougher in the fourth quarter, and we anticipated that, you know, really as going into the beginning of this year, really. I think it's just one of those things, like we said in our prepared remarks, that you know that certainly feels like demand for us, the feedback that we're getting from our customers has been positive. We're seeing good trends with our national account reporting. We're not losing customers. Things are all trending favorably in that regard.
It's just a matter of the demand we feel like is not out there for our customers' products, if you will. We're just not picking up as much freight from those same customers that we may be making stops every day at their location. You know, just continuing to kinda work through these challenges, if you will. You know, we certainly made adjustments all year. I think when you look at the operating ratio performance in general and what our service metrics are, you know, we've been making adjustments to this lower than anticipated volume environment that we've been in.
You know, we typically, when we've been in a down cycle, and we've been in a negative GDP environment this year, you know, a lot of times we'll see three-five quarters where we kinda underperform our 10-year average. I always like to remind everyone that our 10-year average includes doubling the market share. You know, this, like I said, was the third quarter where we underperformed. You know, we're going into the winter. That's always a little bit seasonally slower anyways.
Like, you know, we feel like, based on what we've been able to do so far this year, producing over $900 million of revenue growth, you know, good solid operating ratio improvement, we'll get through this winter and then, you know, perhaps we start seeing some buildup once we get into the spring. I'm talking on a sequential basis, start seeing that buildup back in the business once we get into the spring. You know, maybe sooner. Obviously, lots going on with the economy. But that's some of the baseline for what we're thinking right now.
Okay. That's very helpful color, Adam. Thank you for that. You got all those different questions in there. I guess maybe for my one quick follow-up, would just be curious to kinda get your sense for, you know, sequential, how we should be thinking about the sequential change in operating ratio, 3Q to 4Q. I know to your point, typically tonnage is a bit softer sequentially. You know, and there's, I'm sure a lot of puts and takes out there. Historically, it's about a 200 basis point degradation, 3Q to 4Q. Is that the right way to think about it this year? Or, you know, just some additional color would be helpful.
Sure. Yeah. It's, you know, for one, the fourth quarter, we usually have an annual actuarial assessment that's an impact if you just look at the raw numbers, the pure average. But it's usually about 200-250 basis points sequential deterioration from 3Q to 4Q. You know, I think probably the appropriate target would be about 400 basis points increase off the 69.1 that we had. Just talking through a few of those puts and takes that'll go into it. I'd say 400 probably plus or minus, you know, a little bit just depending on, in some cases, some of these expense items that I'm about to talk about. You know, also the top line.
Obviously we had a one-time item that favorably impacted our operating ratio by about 100 basis points in the third quarter. Kind of adding that back to normalize what our fringe benefit costs have been trending earlier this year. I think that similar to the 2Q to 3Q change in our general supplies and expenses, we generally see a little bit of an improvement from the third quarter to the fourth quarter. We expect that from a dollar standpoint, that should remain somewhat flattish, but you know, as revenue is typically a little bit lower, would expect that to increase, you know, I don't know, maybe 20 basis points from 3Q to 4Q. Depreciation is another item.
We're still taking delivery of equipment. Normally, you kind of have all your depreciation in there, so I'd expect to see that continue to tick up a little bit. Finally, our miscellaneous expenses, those have trended low throughout the year. Those are typically around about half a point. I think we were at 20 basis points, point two percent in the third quarter. Expect that to normalize at some point as well. You know, some of those cost items just may create just a little bit of variance versus what the ten-year average might otherwise suggest. You know us. I mean, we're looking at every dollar we can from a discretionary spending standpoint. We'll be managing productivity and other costs as tightly as we can as we continue to adjust to current top line revenue and volume trends.
Okay. Well, Adam, Greg, thanks so much for the time. Really appreciate it.
Thanks, Jack.
The next question comes from Allison Poliniak-Cusic with Wells Fargo. Please go ahead.
Hey, guys. James on for Allison. Actually, just wanted to get a little bit more color on September and just kind of wanted to understand if there was a mix shift in that month that might have impacted yields and trying to sort of get a sense of what pricing was independent of sort of that mix shift change and sort of how we should think about that moving forward.
Yeah, nothing major that we had not already been seeing. Certainly that, you know, our weight per shipment has been trending higher, as I mentioned, at least through the third quarter. And then our length of haul has been a bit lower as well. That's down almost 1%. So both of those metrics putting a little downward pressure on that reported revenue per hundredweight metric. And which I think we talked a little bit about that on the last earnings call. You know, overall, excluding the fuel surcharge, the revenue per hundredweight was up 7%. So we're still seeing, you know, good yield performance overall.
Then those yield or mix metrics, if you will, somewhat reconcile how we got from the growth rate that we were seeing from the second quarter to the third quarter. Overall, as contracts are renewing, we're continuing to look for increases. You know, align with our long-term philosophy of we always are looking to try to increase yields to offset our cost inflation. I would say core inflation is probably a bit higher than what some of these increases we're getting right now, just dealing with this inflationary environment. We're always looking at things on a long-term basis.
If we're continuing to make progress on those renewals, try to get our costs plus that pricing to ultimately support the investments that we're making back in the system. You know, we've invested a lot in real estate and capital expenditures. When you look over the last 10 years, it's been almost $4 billion of investment in total, with about $2 billion going into our real estate network. You know, I think we've certainly done a good job of making sure we're investing ahead of growth. We don't want the network to be a limiting factor to our ability to grow. It's been important to build in that capacity into the service center network. It certainly makes years like 2021 and the growth that we've seen in revenue this year possible.
Got it. Just to follow up on that, just given the renewals that you're seeing, the sort of efficiency in the network, like if tonnage trends continue or negatively or even sort of become more negative, is 2023 a year that you can still get OR expansion sort of at or above 100 basis points, or are you gonna start bumping up against fixed costs fairly soon?
Well, you know, I think the thing that we typically see in the past, and you can look at sort of the 2016, 2019 as example, is when we get into an environment where revenue is flat to down overall, that's something where we are gonna continue to invest. You know, like Greg mentioned in his comments earlier, we're gonna continue to invest for the long-term. That often creates a little headwind, if you will, of the depreciation cost as a percent of revenue.
The OR change that we saw in 2016 and 2019, the slight deterioration of both those periods was pretty much limited to that change in depreciation cost as a percentage of revenue. We certainly are looking to manage all of our variable costs to match what those revenue volume trends are. We'll be looking for productivity, and we'll be looking closely at every dollar that we spend. We certainly wanna spend dollars when there's an appropriate return that's there, and don't wanna do anything that might limit the long-term performance. You just gotta be careful when it comes to discretionary spending. You know, we've generally been able to manage all those other costs flat.
Our cost structure is highly variable, more than two-thirds, almost three-fourths of our costs are variable now. We just continue to work those costs as best we can, look for productivity and any way that we can save money to offset, you know, any kind of pressure we may be seeing on the top line.
Great. Thank you for the time.
The next question comes from Jordan Alliger with Goldman Sachs. Please go ahead.
Yeah, just a follow-up maybe on the cost front, looking ahead beyond even the current quarter. You talked about inflation. Is there any relief on the inflation front, whether it be on the wage side, I assume on the purchased transportation side, but just sort of your thoughts on sort of the cost inflation environment, you know, as we move beyond this, what you're seeing today.
Well, from a core inflation standpoint, as we go into next year, you know, I think everybody in this country is probably hoping for seeing some type of relief. Really, I think that starts with we've gotta have improvement on the energy side. Energy drives inflation overall for this country, and we've got to see some type of movement there. You know, I think that gives it kinda removes the hurdle of uncertainty for many business owners and our customers because then it should control what the Fed action may be.
Once you get those then I think at least cleared, you know, you get reinvestment back in businesses and so forth, and hopefully start seeing freight flows once again a little bit stronger and at the levels that we anticipated when we started this year. For us, in particular, salary, wages, and benefits are probably 65% of our total costs. We did just give a wage increase at the first of September this year, rewarding our employees for the performance that they've been able to produce over this last year. You know, we control that element of inflation. Certainly on the benefit side, we've seen a little bit higher costs there on some of the medical costs in particular.
As we continue to improve paid time off benefits and some of those other features that we've rewarded employees with. You know, another 15% of our costs, though, are the operating supplies and expenses. You know, fuel is obviously a big component, and I think our surcharge program has been effective at offsetting the increase there. We hope that we'll see a decrease as we make our way through 2023. That should help on, you know, some of the parts and other component, tires and so forth, that we've taken big increases on this year. Then certainly on the depreciation side, you know, with respect to equipment, we've taken some increases there.
We hope some of those moderate as we get into next year as well. We haven't finalized what our equipment orders and what pricing and so forth will look like. Those are some of the biggest elements. You know, we certainly have faced increased insurance premiums like every other carrier over the past several years. Again, it's just you gotta keep looking for ways that when you know you've got an increase in one area, you gotta try to find some savings in another. The biggest area for us will be to continue to focus on improved productivity. With salaries, wages, and benefits being our biggest cost element, you know, we can offset, we control the inflation, but we can help ourselves by continue to drive improved performance in those areas.
Great. Thank you.
The next question comes from Scott Group with Wolfe Research. Please go ahead.
Hey, thanks. Good morning. Adam, I wanna just follow up. I thought I heard you say that core inflation is now tracking above some of the recent pricing increases you're getting. That feels like a pretty big change. Third quarter rev per shipment ex fuel is up 9%. Just add a little bit of color or clarity to what you're saying there.
Well, it's just mainly talking about what we've seen in terms of costs on a per shipment basis. Sometimes those per shipment costs increase a little bit more when you're in a little bit softer environment overall. I mean, we've still got a positive spread in terms of when you look at revenue per shipment performance versus just cost per shipment. We certainly think that can continue overall. That's the focus is always to try to achieve 100-150 basis points of positive spread, you know, overall, in what we can get on a revenue per shipment basis with the fuel versus what the cost per shipment with the fuel can be as well.
Just looking at things on a pure cost per shipment basis, certainly trending a lot higher than you know what I had thought. I thought we would see moderation in the back half of this year as we started comping against some of the increased inflationary items that we experienced in the second half of 2021. Certainly that moderation hasn't happened. We're still seeing some pretty big increases, and I think a lot of it is driven you know by these increased fuel prices that have just remain high throughout the year. We thought we were gonna start seeing some relief a few weeks ago on that, as it started trending down a little bit.
The last two, three weeks, I think it's back up about $0.50 over where we had dropped to a bit prior. No change in terms of what we're gonna be looking for from an increase standpoint and what we think we can achieve, 'cause again, we've gotta have cost plus pricing in our business to offset that inflation, but more importantly, to keep supporting the reinvestment back in our business.
You weren't trying to imply that pricing is all of a sudden slowing a lot or anything like that?
No, not at all. If I said that, I misspoke for sure. We're really pleased. I think when you look at you know in terms of the yield trends that we've had all year they certainly have been very positive and that's continuing into October. I mean, I gave the number in terms of what we're seeing from a you know at least as of right now what the tonnage is doing. You know, certainly that implies that that revenue for hundredweight excluding the fuels is pretty consistent with where we were maybe a touch higher for the third quarter overall.
You know, we would certainly expect that as we continue to go through renewals, you know, generally, if mix is held constant, that number increases sequentially from quarter- to- quarter. Certainly that will be the objective as we have increases come and due. You know, we'll be coming up fairly soon on the general rate increase as well. They'll apply to about 25% of our business. You know, all of those factors, we've not really seen any change in the pricing environment. It's remained steady throughout this year and certainly supportive of the increases we've been able to get.
Okay. Thank you, guys.
The next question comes from Christian Wetherbee with Citigroup. Please go ahead.
Hey, thanks. Good morning. You know, Adam, I just wanted to make sure I understood the sequential cadence in operating ratio from 3Q to 4Q. I think you said it was 400 basis points plus or minus relative to the 69.1. I just wanna make sure that that is right. Then as you think about sort of the potential variables that maybe you could add to that, I guess that would kinda get you closer to OR, you know, flattish OR on a year-over-year basis. I think you're still below it based on the guidance. Wanna get a sense of conceptually as we start to string out over the next few quarters, what are some of the dynamics that could then start to potentially push a deterioration in the operating ratio?
Well, I mean, obviously the top line is the biggest element. You know, it certainly when you've got revenue that covers a lot of costs and some of those fixed cost elements that we have. Yeah, the 400 basis point plus or minus that was off the 69.1 reported operating ratio. And obviously just the delta versus the normal cadence. The biggest being that a 100 basis point benefit that was one- time in nature that was recorded in the third quarter. Yes, we certainly transition into the next year. You know, typically the first quarter is about 100 basis points worse than the fourth quarter.
In the first quarter of 2022, we had a 70 basis point improvement. You know, we know we've got some tougher comparisons coming up from both a top-line standpoint and an operating ratio standpoint, just given you know, the phenomenal performance that we've had this year. You know, it's almost 300 basis points improvement in the operating ratio from a year- to- date standpoint. It's been an incredibly strong year coming off of you know, the improvement that we made in 2021. I mean, we had $1.2 billion of revenue growth then, and we put another $900 million year- to- date on top of that. In probably a negative GDP environment.
You know, I think we're probably in a stronger position than we've ever been in terms of going through a slower macro environment with respect to the relationships that we have with our customers. We you know mentioned earlier we've not lost any business that we've got to try to go back and regain, if you will. It's just gonna be a function of when our customers have more freight to be able to give to us. You know, that's encouraging. You know, I've mentioned that I feel like the October trend's encouraging as well.
You know, just be a function of getting through, you know, kind of this winter and seeing, you know, where that baseline becomes, where we finish the fourth quarter of this year from a volume standpoint. You know, getting through 1Q and like I mentioned, seeing if we can't start getting some of that seasonal buildup that we would typically see, you know, coming to us early next year.
Got it.
Yeah, it's you know a lot of it in terms of an OR standpoint is you know it becomes more challenging to get year-over-year improvement in a flattish or a down revenue environment. Like I mentioned before, it's for us we're gonna manage all of our variable costs and then just sort of keep investing. Might see some loss there on depreciation line, but that's something that we know once that volume returns to the business and you know we say to produce long-term operating ratio improvement takes improvements in density and yield. Once it starts coming back to us, we've proven what we can do in terms of the model.
Getting that throughput through the system, you know, I think we can start working and trying to achieve the long-term operating ratio goal that we laid out at the end of last year of producing a sub-70 annual operating ratio.
Yep. Okay. That makes sense. You guys have done historically a good job of outperforming on a tonnage basis relative to peers, you know, both I think in up cycles as well as down cycles. I guess, as you think about this one, you know, maybe with more of your competitors leaning in from a growth perspective, I don't know if you would agree with that comment first off, but, you know, how do you sort of see that relative performance opportunity for you as you go through what could be a softer period over the course of the next, you know, year or so?
Well, a lot of times our market share, you know, has been flatter, if you will. Like, again, looking at 2016 and 2019, as recent examples. You know, for the last three quarters, while we've been still producing really solid volume growth, if you back us out, at least from the public carrier group, you know, volumes have been negative on a year-over-year basis going back to fourth Q of last year. Really just looking at total tonnage, it's kind of on an average basis was flattish, pretty much since the first quarter of 2021 through second quarter of 2022 several years.
You know, a lot of times, like I said, it just may be a point where we may get to where we're sort of flattish, if you will, with the group. You know, right now it just feels a little bit different. That's what I mean by we've not lost. When I look at our national account reporting, talking to customers, you know, there's more conversations about the value add, that's how we've helped customer supply chains really over these last couple of years as people have dealt with the pandemic and supply chain challenges.
You know, what we were able to do in 2021 in particular, while there were a lot of capacity issues within the industry, and to be able to support our customers and their growth and to try to keep their networks.
Shipment volume or tonnage volume from October, September to October versus what it was. Then less of a nitpicky question. I guess, you know, I'm not so worried about Old Dominion's ability to see a positive spread between revenue and cost per shipment. I think you've done it, you know, 10 in the last 15 years, because obviously the Mastio data and the service, and you guys are just best in class there. But I guess the question really is the industry's ability to see positive yield ex-fuel growth next year. Some of this is a pricing discipline question for the industry, which I ask every quarter, but I'd just love to get your perspective in terms of what you think the industry's ability to see yield ex-fuel positive pricing is next year based on everything you're seeing out there from a pricing perspective.
Sure. Thank you for recognizing the service performance. Certainly, as we said, service supports yield. You can't go into an account at a renewal if you've had service failures and so forth and you know missed pickups late deliveries damaged shipments those types of things.
To be able to get you know, the consistent increases like we've been able to achieve you know, really going back for many years now. You know, that is a differentiating quality from us versus the group as well, is I think that you know, we look for consistency with our program. It's not necessarily you know, in whose favor is the market today versus tomorrow. We just want to build in a fair approach that tries to create win-win scenarios for us and for our customers. They know how to forecast and plan for from an expense standpoint. More importantly, they can recognize the value and there's a difference between price and cost.
I think we're increasingly seeing customers recognize that value that we're able to deliver for them. You know, we certainly will continue with our initiatives. You know, I can't comment on what the other carriers will be doing and what their strategies you know will be going forward. You know, I think that, like I mentioned, the last three quarters the other carriers at least have been negative from a volume standpoint and, you know, have continued to push pricing. It's hard to imagine that that changes and certainly seems like you know that has been you know favorable to their financial results. There's been general improvement in industry dynamics you know at peers.
Our yield philosophy has been different from the group for many years and certainly it's been rewarding for us and has allowed us to do a lot of things in terms of the investment cycle and the dollars that we've been able to put into our system to keep growing and to have the baseline. We've probably got 20%-25% excess capacity in the system today. You know, we know we're building up for when that next big leg of growth comes to us and we're confident in what our long-term market share capabilities should be. You know, we can get through the challenges of the short term and softer economic environments.
It's what you do in those up cycles that really make a difference. Yes, a lot of encouraging trends, if you will, for us and just, you know, we wanna make sure that we stay ahead of the game and have got the capacity, we've got the people, and we've got the fleet to be able to take advantage of the next up cycle whenever it starts.
What about the October versus September data point?
Yeah, sure. From a tonnage standpoint, and again, keep in mind, you know, we typically don't even talk about those details. We just give sort of an average change in the revenue. Just knowing the sensitivity around this at this point, you know, the numbers will change a little bit as we finish out these final few days of the month. Right now, what we're seeing, you know, from a month to date standpoint, it looks like that we're gonna be pretty much right in line with the normal sequential change for October. Typically, October decreases about 3.5%, sequentially versus September. We're right in that ballpark.
Certainly it can move around, you know, a little bit as we finish out the month. That's really the first time, you know, since February of this year that the numbers have pretty much been in alignment. You know, we'll look and see. You know, there's not necessarily a positive catalyst coming, if you will. But if we can kinda keep in touch and keep pace, you know, with normal sequential trends, you know, the positive catalyst meaning in the economy right now. If we can kinda keep pace with these normal sequentials as we go through 4Q and 1Q, you know, then we have an idea of you know what type of buildup we might see sequentially as we start getting into the spring of next year.
Right. Okay. Very good. Thank you very much. Appreciate it.
The next question comes from Todd Fowler with KeyBanc Capital Markets. Please go ahead.
Great, thanks, and good morning. Adam, I think you've touched on this in a couple of different ways on the call here, but I just wanted to kinda square up the comments on the weight per shipments. You know, it was up in the third quarter, sounds like it's, you know, still turning positive. With your comments about customers seeing less demand, I would think that would have, you know, some impact where there'd just be less, you know, freight on each pallet. Can you just talk a little bit about the mix and what's been going on with weight per shipments? It seems like it's in a kind of a normalized level, but just wanna make sure that that's the right way to think about it right now.
Yeah. It's from a sequential standpoint, it decreased about 10 pounds from the second quarter to the third quarter. Yeah, it right now in October, it's pretty much about the same as where we were, right around 1,560 pounds, if you will. Yeah, that if that trend held true through the fourth quarter, then we would be looking at a decrease. You know, we took action last year in terms of getting some of the heavier weighted shipments out of our system, some of those spot quote shipments, as well.
Those spot quotes as a total of our business have decreased as a result of what we're doing last year really in an effort to protect capacity for our existing LTL customers and make sure that we could deliver what they needed. We started seeing an increase sequentially in fourth quarter of 2021 versus that low water mark that we hit in 3Q. It went from 1,538 pounds up to 1,575 in 4Q, and then increased further in the first quarter of this year to 1,589. Since that point, it's been declining a bit.
Yeah, I mean, that support in, you know, last year was such a strong fourth quarter, in terms of we ended up with an increase in our tons per day. You know, typically down about 1.5% and, you know, we were actually up almost 2.5%, sequentially versus the third quarter. You know, that strength as we went through fourth Q was why we had such high expectations, coming into this year. It's just been sort of this flattish environment, if you will, from a volume standpoint all year. Yeah, that's kind of what we've been seeing from a weight per shipment standpoint.
Okay. No, that sounds. I mean, you know, tonnage being down a little bit, the weight per shipment holding, it seems like a decent, you know, combination, all things considered. Just for a follow-up, I'm curious if you have any comments on headcounts. It was down sequentially. My guess is that's probably letting a little bit of attrition kind of run its course, and I don't think the fourth quarter is a big hiring period. How should we think about, you know, the cadence of headcounts, either sequentially or year-over-year, just given the demand trends? Thanks.
Tom, I think you'll continue to see that trend, you know, track our shipments. Right now, like you said, we've been simply letting attrition take care of our needs or move it back in the right direction. We would continue to do that through the first quarter, which is typically, you know, our slowest quarter. We aren't really hiring, other than filling vacancies and whatnot. Not much going on from that standpoint at this point in time.
Got it. You've got a little bit of glide path, you know, for the next couple of quarters just on the attrition front.
Yeah, I think so. You know, but keep in mind, we've continued to have driving schools and continue to work those and continue to get drivers trained because, you know, we know the spring will, it'll change at some point in time, and, you know, we'll come out on the other side in a better position. You know, certainly from a, I think from a driver standpoint and certainly from a, you know, capacity standpoint. I think we're doing some of the right things today to set the stage for, you know, when times do recover and get better. You know, as has been the past in our business, you know that time will come, hopefully sooner than later.
Yeah, understood. Thanks, Greg. Thanks, Adam.
The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.
Thank you. Good morning, everyone. Adam, and I just wanted to follow up on some of the tonnage commentary already. Specifically, if you were to take a little bit of a glass half full approach here, I think you said in the start of the call that, you know, you kind of underperformed on share for like three-four quarters and already three quarters into it. If you historically look at, like, your tonnage stays negative for like two or three months, maximum, and you're already kinda pretty much all the way into that. You did say that you don't think that there's a positive catalyst on the horizon, but what are you looking for any potential signs that the cycle may be turning, and we may be kind of in a restock, kind of, you know, uptick position maybe in a couple of months?
Well, I mean, the biggest thing is just the conversations that we've had with customers. You know, like I said earlier, I think that there's just so much uncertainty in the market today. That just gets into the psyche of business owners in terms of the risk that they're gonna take for capital. You know, I think there's still a labor issue and supply chain issue that's impacting many customers today. We've heard firsthand that, you know, just given the uncertainty out there with the economy, some customers have made the decision to not be as aggressive to fill open positions from a labor standpoint for fear of what may come, you know, on the demand side for their business.
I think that we've certainly, when you think about there's three big layers of uncertainty that people are facing right now, the upcoming midterm elections, and then, you know, after that you've got clarity, you know, with at least for the next couple of years. Then comes the energy issue that has got to be dealt with. We've got to see some type of improvement overall in terms of where fuel prices are and the impact it has on overall inflation for the domestic economy. I think that if that riddle gets solved, then you get some clarity in terms of the interest rate environment.
You know, I think we've got to start knocking some of those down to get back in into a growth type of mode. You know, even when we look back at prior periods, be it even looking as bad as 2009 was, you know, we started getting sequential growth, that is, in the spring of that year. You know, we had a really bad fourth Q 2008 and 1Q from a sequential standpoint, like many businesses did. You know, looking at 2016, you know, another slower environment, same kind of thing where you know, the fourth quarter of 2015 things are slowing down. We kinda went through the winter.
We started getting build up back in the spring. At some point, people have got to get some inventory back in the system. I know there's a lot of conversation about inventories, but you know, frankly, we continue to face issues in terms of getting parts. Many of our customers give us the same feedback that they don't have the right levels of inventories in the right places. You know, that creates great demand. You know, we still look at an inventory to sale ratio that's lower than pre-pandemic levels. You know, I think there's certainly you know, a lot of factors that have got to be dealt with.
Just having those conversations with customers and our sales team is doing that on a day in and day out basis. They're trying to figure out, you know, what their plans are going into next year. You know, we take those from each of our sales account representatives, each of our service center managers at our 255 locations, and try to build that into, you know, somewhat a baseline forecast plan to build around from a equipment planning standpoint, headcount planning, service center capacity planning. You know, that's the best feedback. You know, you can read all the economic reports in the world, but the best is feedback we get from the ground up to help us plan for our business.
Great. Thanks for walking us through that. Maybe as a quick follow-up, apologies if I missed this when you said it, but, are you seeing any signs of, TL players kind of trying to encroach into the LTL market, kind of given how loose things are on the TL side?
Not really. You know, the reason for that is, you know, where that may come into play and has in the past, say back in a 2018 timeframe, would be on some of those spot quote type shipments. You know, before the strategic actions that we took last year, spot quote shipments are like 8,000-10,000-pound type loads. Historically, 10,000 pounds somewhat defined the LTL industry. But those heavier shipments, you might have a truckload carrier come in and try to build multiple stops or just be willing to take one load.
If you will, that was that spillover type of freight. The actions that we took last year were designed to try to get some of that freight that wouldn't be as sticky proactively out of our system. As a result, those spot shipments that used to average maybe 5% of our total, so a small number overall, it's probably more like 1%-2% at this point. You know, we were fortunate that we proactively tried to flush some of that out of the network, really designed to make sure that we were protecting our consistent LTL shippers and the capacity needs that they had, in particular last year, and what we thought was gonna transpire this year as well.
I don't think looking at some of our competitors weight per shipments that I think some other companies took a similar approach. I don't think that's as big of a you know kind of a challenge to work through. In the past, there's that freight would swing back into truckload. It creates somewhat of a vacuum effect that other carriers would look to fill. I don't think that risk is out there as much as it has been in prior cycles.
Very helpful. Thank you.
The next question comes from Bascome Majors with Susquehanna. Please go ahead.
Following up on Tom's headcount question, if I look at your shipments per employee, they're still call it 8% below where they were this quarter in 2019. Can you talk a little bit about, you know, maybe a more bottoms up look at productivity in your own metrics? You know, how does productivity compare to history on the dock right now? How does the driver productivity compare? And just is there an opportunity in some of these top-down metrics that we can calculate to get back to historic levels in a weaker demand environment? Or does it make sense to stay a little long headcount in a structurally tighter labor market? Thank you.
Yeah. I'll answer the last part of your question first there, Bascome. I think it definitely does make sense to stay a little long from a labor standpoint because we. You know, we've talked about it on prior calls, you know, we had to work an awful lot harder in the recent past to ramp up from a driver standpoint, particularly than we have in, you know, over the years. It's just much more difficult. Length of market was a heck of a lot tighter, and we did work an awful lot harder than we always had in years before to ramp up. For sure, we will be, you know, a little more diligent on trying to maintain that driver force and keep it at as high of a level as we possibly can without negatively affecting productivity.
To go back to the general productivity question, we're starting to see some improvement, some marked improvement on the platform, which is a good thing, and it's pretty typical when we get in this environment. You know, our labor force becomes better trained and more experienced, and we start to see that positive improvement, positive change. We are seeing that now, so that's certainly a good thing. Certainly, we struggle a little bit on the P&D side, the pickup and delivery side, because we're, you know, obviously just not picking up the same number of shipments at each stop that we were doing when we were really, really busy. That's certainly more of a challenge.
Your miles between stops and that kind of thing become, you know, a little greater and it's certainly more difficult to keep up from that standpoint. Obviously, we'll continue to focus on those. We always think we have room for improvement, both P&D and platform and from a load factor standpoint. We'll continue to stay laser focused on those type things and continue to try to drive some cost out, you know, when we can and where we can.
Thank you, Greg.
The next question comes from Bruce Chan with Stifel. Please go ahead.
Hey, good morning, team. This is Matt on for Bruce. Thanks for squeezing us in here. Curious to get your current view on net capacity in the industry and, maybe how you might expect it to trend, over the next couple years here.
Certainly I think in this type environment there's certainly capacity out there, much more so than there was last year, you know, back in the mid-2021 and prior. I think we were the only one that maybe wasn't really suffering from a capacity standpoint. Certainly we were in better shape than most. I mean, as Adam had mentioned before, we spent an awful lot of money to ramp up our capacity, and I think we've done an extremely good job of that. We continue to stay focused on building capacity. Like I mentioned before, you know, we'll come out of this thing hopefully sooner than later and, you know, we'll be in good shape. I think there is some capacity obviously out there now.
You know, we don't see the same things going on this year that we did last year when carriers were in trouble. They set embargoes and various things to limit pickups and whatnot. You know, certainly we're not seeing or hearing about those kind of things now. So, you know, yeah, there's capacity obviously, but you know, I think the question is, you know, what's everybody doing to try to ramp up when the need arises on the other side? You know, you know what we're doing.
You know, we've got a large number of capacity increasing projects underway now, and you know, we'll keep working on those and again, you know, like I said, be in better shape when volumes do change and when we start to pick back up. Feel good about where we are and you know, obviously, what the others do, they do, and that's, you know, we certainly can't control that.
Great. Lastly, are you guys seeing any changes or differences in the underlying demand by specific end market or, geography? Thanks a lot.
No. We've probably seen a little bit better performance with our industrial-related accounts. Once again, in the most recent quarter, it probably grew 200 basis points faster than the overall company average revenue growth rate. You know, the retail side was probably 200 basis points below, but overall still seeing, you know, growth in all segments, if you will. It's probably a little bit better performance on the industrial side. Most of our regions, you know, you got some growing a little bit more than others when we look at it, but most are staying fairly balanced, which is a good thing, that's helped us be able to effectively reduce our purchased transportation, which was a positive for the third quarter.
We're effectively back to pre-pandemic levels in the sense that we're essentially fully insourced again. That's where we wanted to be 'cause we know that improves our service value overall. That's been a positive trend, if you will. You know, if you don't have somewhat consistent growth in all those regions, you can get a little bit out of balance, and we might not have been able to achieve that objective. That's been a positive development, at least to help from a service and costing standpoint.
That's super helpful. Congratulations again on the exceptional performance.
Thank you.
The next question comes from Tom Wadewitz with UBS. Please go ahead.
Yeah. Good morning. It's Tom Wadewitz. Just, I think, Adam, you gave quite a bit of commentary on September, October, but I don't know if you offered what the revenue per hundredweight was. It's kind of trending in October ex-fuel. Can you give us kind of a sense of that? Is that kind of stable or where is that at?
Yeah, pretty stable. Tom, I didn't give a specific number, so to speak, but I just mentioned that it's right in line, maybe a little bit better than what we saw the average for the third quarter. We were up 7.2%, the revenue per hundredweight in the third quarter, excluding fuel surcharge and right about that same level in October.
Do you think that that's kind of the level you stabilize at? I mean, I guess you talked about inflation being, you know, maybe a bit more stickier, higher than you thought. I think we normally think of, you know, maybe 4%-5% as being what's a normal growth in revenue per hundredweight to get a bit more than inflation. But I guess if you're running with higher inflation, you gotta get more price, right? Do you think that's the right level, or do you think that in a weaker, you know, kind of a weak rate market, you're gonna see that decelerate a bit further as you go into 2023?
I think that, you know, when you look at our long-term revenue per shipment performance, a little bit different than the per hundredweight. But long-term revenue per shipment, we've been able to average between 4.5%-5%. And, you know, that's whether you look at it in certain years including fuel or excluding fuel, you know, that's kind of been the goal because long-term our costs for shipment performance has been kind of in that 3%-3.5% range. Mainly the increase is that we give to our employees each year from a wage improvement.
You know, we've certainly faced the increased cost of equipment and insurance premiums and, you know, fortunately have been able to offset some of those other inflationary items through improved productivity and efficiencies within our operations. You know, we're certainly, you know, we'll have the same objectives as we go through the rest of this fourth quarter and as we transition into next year as well. You know, looking at the per hundred, you know, certainly we had bigger increases in 2021. You know, some of that started particularly in the back half of the year when inflation was picking up and, you know, this year been solid increases as well.
You know, the key is just as contracts renew and they renew throughout the year for us is to continue to make improvement. It's, you know, we work a continuous improvement cycle, whether it's with our yield management, the efficiency of our operations. Every department is looking at continuous improvement, and certainly we've got to continue with our best efforts there on the yield side. You know, I think that we'll see core inflation. We certainly hope that moderates as we transition into next year. We shouldn't need as big of an increase, perhaps as what we've seen the last two. Certainly want to see sequential increases, you know, from quarter- to- quarter.
Right. Okay, great. Makes sense. Thanks for the time.
The next question comes from Jonathan Chappell with Evercore ISI. Please go ahead.
Thank you, and good morning. Adam, just two quick follow-ups for you. First, on the PT, you brought it up in an answer a couple questions ago. 2.1%, as far as I can tell, is about as low as it's ever been in your network. As you contemplate keeping maybe more resources from a headcount perspective just because of the challenges in hiring, is there any more room to flex PT, or are you kind of at the absolute minimum there, and when we think about it holistically, salaries, wages, and benefits plus PT probably stays a little bit elevated for the foreseeable future?
That level where we are. We effectively in the third quarter didn't use any PT within our domestic line haul network. That balance that we've historically had that generally trends between 2%-2.5% of revenue reflects mainly our, as we have a little small truckload brokerage operation, so you've got those carrier costs there, and then the partners that we have with our Canadian operation as well, those purchase transportation costs are in that baseline number. Certainly, you know, wouldn't necessarily expect that to go much lower as a percentage of revenue unless something is changing with those businesses which we don't foresee.
Yeah, nothing really out there to cull, if you will, as it impacts the domestic operation. You know, it certainly flexed up as we went through the balance of 2021, primarily using that PT to supplement our workforce and to a degree our fleet where some of what I mentioned earlier, you know, we had some regions that were growing, you know, much stronger, like coming off the West as we came out of the pandemic, was growing incredibly strong and can get your fleet out of balance if you don't appropriately manage. That was some of why we were using a little bit of PT as well, was just to keep the network overall in balance.
Okay. That helps. To tie a couple things together, I mean, it sounded like you're pretty optimistic. I mean, maybe optimistic is a strong word, but not as pessimistic regarding some of your customer commentary. But in your prepared remarks, I wrote down, you said directly, "Demand just isn't there for some of your customers' freight." Do we foresee a late peak season where, you know, it's not there today, but, you know, going into a time that might seasonally be slower, you start to see a reversion or a catch-up? Or do we kinda just write off the rest of this year as, you know, it's gonna be weak and maybe things are right sized by 2023 and start to see a pickup then?
Yeah. Yeah, for us, we don't have a peak season per se. Usually September is our busiest month of the year, just from a function of, you know, the seasonality in our business. You know, we have pretty consistent seasonal trends, year in and year out as we progress, whether it's week by week within the months and then month by month through the quarters. Nevertheless, I mean, it you know, certainly some of the months that we had in the earlier part of the year coming off the strength of how we finished 2021, you know, it looks like March will be our busiest month in terms of just the average weight and shipments, if you will.
Yeah, it's just, you know, managing through kind of the base levels where we are. You know, looking at, I mentioned earlier that when we get, whether it's an up cycle or a down cycle, we, a lot of times we'll have, three to five quarters where we, either outperform or underperform normal seasonality. The third quarter was the third such quarter of underperformance. We'll just continue to watch the trends. You know, like I mentioned, you know, what we've seen at least through the second and third quarters was just in the months where we see a lot of buildup, we didn't see that same type of acceleration. September, for example, that would normally be up sequentially about 4%, we were up about half a percent.
You know, will we get the buildup in November? You know, remains to be seen. Then December kind of drops off. I feel like if we can kind of somewhat stay a little bit closer in touch with our normal sequential trends through 4 Q and 1 Q of next year, then you know, that's kind of the looking at getting to the spring and seeing will we start you know seeing some volumes coming back to the business. 2 Q of this year, you know, it's quite a bit different. We're used to seeing volumes increase sequentially about 7.5% from the first quarter to the second quarter, and we were up about 0.7%.
You know, we just haven't had that buildup that we otherwise would see. Yeah, it's just gonna be a function of kind of getting through and watching these developments. You know, October generally sets the trend. When we look back for the fourth quarter, when we look back at some prior periods where we were kind of in or going into an economic slowdown, you know, you had a lot more underperformance, if you will, with October versus September. That was something that we've been closely watching internally, and you know, makes us feel a little bit better as we really get into the winter months where we're always gonna be a little bit seasonally slower.
You know, it's just a function of continuing to execute on the plan and, you know, adjusting as need be to what the overall volume environment dictates. Then, just trying to stay engaged with our customers and figure out will we really see that spring buildup next year or not. Then all the while, you know, we're probably focusing a little bit more on sequential trends now. You know, certainly, again, from a year-over-year standpoint, the fourth quarter was so strong. We kinda knew the fourth quarter and the first quarter from a year-over-year standpoint were gonna be much harder comparisons on the volume side. That's why we're probably paying a little bit closer attention now to how some of these, the seasonality is playing out for us.
Okay. That's very helpful. Thank you, Adam.
The next question comes from Jason Seidl with Cowen. Please go ahead.
Thank you, operator. Gentlemen, thank you for squeezing me in here. Just one question from me, and it's sort of been asked in different ways, but, you know, how should we think about the industry's continued ability to gain pricing above cost inflation with many larger LTL carriers sort of expanding capacity into a downturn? Is that something we should be concerned about? Or is the fact that we're seeing so much cost inflation across everybody's network that we should remain confident that everyone's gonna maintain pricing discipline that we've seen over the last decade?
Yeah. Well, we certainly, like I mentioned, we've the carrier group on average, if you exclude us, has seen negative volumes on a year-over-year basis for the last three quarters and but has continued to increase their yields. You know, we wouldn't anticipate a lot of change from that. You know, with respect to whether capacity is really being added or not, you know, remains to be seen. We've not seen really any material addition. Some people are talking about it. There's been one other carrier, I guess, that certainly has increased their service and account. When you look at the industry, at least the public carriers, on average over the last 10 years, there's been a decrease in industry capacity.
You know, don't really foresee a lot of change in that regard as we move forward, but certainly we'll continue to watch it. Yeah, we believe the industry will stay disciplined. You know, we know what our plan is, what we can control, and we'll continue to control the elements that we can. You know, what the other carriers do, we'll just continue to just sort of watch and see. You know, I think we've got a long-term track record in terms of what we've been able to do. You know, over the last 10 years, we've averaged growing our revenue 11% a year, and we certainly have made improvements to the operating ratio along the way.
Again, it's been through a combination of consistent improvements in yield, and then the density through that, the volume throughput in the system, that's allowed us to produce, you know, this consistent operating ratio improvement. You know, different carriers have had different strategies along the way, and certainly, you know, recent periods, other carriers have been increasing rates faster than us. You know, we don't control what they do, but we'll continue to certainly watch. You know, our conversations with customers are what's going on within Old Dominion, what our cost inflation looks like, the investments that we wanna make to help support our customers and the growth in their business, and ultimately, what's the value that we can add to our customers' supply chains.
Those are the conversations we have versus trying to compare our price versus someone else's price. It's all about value and that's service value is what has won the day for us and what will continue to drive our ability to win market share in the long-term.
Well clearly your game plan has worked, so, I think sticking with it's a good thing. Gentlemen, I appreciate the time as always.
All right.
The next question comes from Ken Hoexter with Bank of America. Please go ahead.
Hey, great. Good morning, Greg and Adam. Just to Adam, just to balance out your last comment there, your 100 basis point revenue over cost you noted before, but also noting higher inflation. Just wanna understand, you still target the kind of 50 to 100 basis point operating ratio improvement on a full year going forward, or does that change if volumes are weaker here?
Well, I think we talked a little bit about this earlier. Certainly in periods where revenue has been flat or down, we've had a little bit of OR degradation, and generally limited to the depreciation cost as a percentage of revenue. The reason for that is we want to continue to invest for the long-term market share opportunities we believe we have. You know, certainly when you look at the second quarter of 2020, we had a big decrease in revenue that year, but we were a lot more aggressive in terms of, you know, managing costs and actually improved the operating ratio 10 basis points.
You know, I think that you know, looking more at a 2016, a 2019 for the general performance and doing some of the things that really protect our long-term opportunities, you know, keeping a little bit of inflated headcount like Greg mentioned earlier, continuing with our investment cycle. You know, those are the types of long-term decisions that we wanna make that improve our opportunities for out years, you know, to get prepared for maybe what a 2024, 2025 looks like, versus just trying to focus too closely on the short term and you know, what the first half of next year might otherwise look like.
You know, certainly, a lot of it depends on the overall revenue environment and you know, what we will see. There's a lot of uncertainty out there. You know, that's 2016 and 2019 are probably better examples to look at in terms of how we try to manage the business, manage all of our variable costs flat, as best we can or prevent any type of increase in deterioration there, and those cost elements, and then just might see that those depreciation costs increasing as a percent of revenue, because of the investment driving increased depreciation dollars, and then your denominator being potentially flat to down from a revenue standpoint.
Then at the percent of volume you mentioned from the spot boards, but how about from the third-party carriers, your brokers? Does that shift in this kind of a market when things get softer? Do you add more? Do you keep it steady? How do you think about that strategically?
Well, I mean, we've got, you know, good long-term relationships with many 3PLs. They're about a third of our business overall. A lot of times, what you'll see in a slower macro environment, we're seeing this a little bit now is some of those levels of the 3PL-driven, they kinda flatten out a little bit. You know, we'll continue to watch that.
You know, certainly feel like that a lot of the big 3PL customers that we have, you know, in some ways can help us in the sense of demonstrating the value independently to the shippers that they're potentially helping manage transportation services for, in talking through, you know, what the different elements of value in terms of our superior service, on-time pickups, on-time deliveries, low damages, all those sorts of things. If they're talking to someone that has just been solely focused on price in the past, they can help us talk more about value. In some ways, they could be beneficial to us in a slower macro environment.
Are you seeing that increase as a percentage or does it just stick around that third level up and down in the market? Are you already seeing a change?
No, it's remaining about a third. It's just,
Okay.
You know, the growth is flattening out a little bit, you know, with in terms of looking at the overall revenue with our 3PLs right now.
Last for me is the fuel. It seemed relatively neutral this quarter in terms of kind of a quarterly impact, I guess, versus a huge lag impact last quarter. Does that math sound right to you? In your negotiations, are customers kinda talking? I mean, I know you keep raising your rates, but do customers push back even harder now? Is it a bigger struggle as you go through these negotiations, given the volume environment?
Well, you know, no. There's always a conversation about total all-in price, if you will, 'cause that's ultimately the bill the customer's paying. You know, for us, you know, certainly there was a slight decrease in the average price of fuel in the third quarter versus the second. You know, that's something we'll probably talk a little bit about more on the last call. You know, with like I mentioned earlier, we hope that we see that continue to decrease. You know, I would just say, looking at the impact, there's been a lot of questions about that if we were to see a decrease in the impact of fuel surcharge.
You know, our philosophy is we want the fuel surcharge as just one element of pricing and whether fuel goes up or down, we hope that's neutral to the bottom line for us. You know, probably the best periods to go back and look if we are to get some type of material improvement in fuel prices, 2015, the average price of diesel fuel was down about 30%, that year. We were fortunate we still had some volume growth going that year to help us, you know, have good revenue trends overall, and we were able to improve the operating ratio. You know, the fuel dropped another 15% in 2016.
You know, that year was a little bit different in terms of the overall top line environment and a little bit more pressure from a volume standpoint. We certainly would like to see overall the fuel price continue to drop and certainly that would decrease the all-in price that is being paid today.
Hey, Adam. Greg, thank you very much for the time. Appreciate the morning.
All right, thanks.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Gantt for any closing remarks.
Well, we 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.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.