Good day, and welcome to the Saia Inc. Hosted 4th Quarter and Full Year 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Douglas Cole. Please go ahead, sir.
Thank you, Lauren. Good morning, everyone. Welcome to Saia's Q4 2020 conference call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should know that during this call, we may make some forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the risk factors that could cause actual results to differ. Now, I'd like to turn the call over to Fritz for some opening comments.
Good morning, everyone. I'm pleased to welcome you to this call to review our Q4 and full year results. I'm also pleased to take this moment say goodbye to 2020. While last year brought all of us plenty of challenges both professionally and personally, we learned that we are capable of pulling together as a team to deal with the crisis. Not only do we adapt quickly to changing conditions across our network brought on by COVID-nineteen, we did so while maintaining a high level of service.
In 2020, we delivered 98% of our shipments on time despite experiencing periodic shortages of employees on any given day due to the pandemic. Protecting customers' freight remained a priority for our employees and our 2020 cargo claims ratio of 0.66 percent was a record. I'm very proud of our team for providing the type of service for our customers and pleased that we could do our part and deliver essential goods in these difficult times. It is exciting today to be able to discuss our record Q4 and full year results. Business volumes really never tracked historical trends after the downturn in mid March and the ensuing rebound in April and that continued into the Q4.
In the Q4, daily shipment activity remained steady and shipments per workday for the full quarter rose 3.6% compared to last year. Way per shipment rose 2.3% for the full quarter and tonnage per workday increased 6% year over year. Our operations team executed extremely well in 2020 and we were well positioned to handle better than expected late December shipment volumes. Shipments rose 3.5% this December against a difficult year ago comparison where December 2019 shipments increased by 10%. The pricing environment remains stable throughout the pandemic and we continue to focus our pricing strategies and identifying the optimal mix of business while ensuring that we are compensated for our strong service execution.
If anything, the continued tightness in the driver market made worse by the pandemic and the increased cost of purchase transportation has made carriers even more focused on pricing in the face of these cost pressures. I'm extremely pleased to report that revenue per shipment excluding fuel surcharge rose 6.5% in the 4th quarter and despite fuel surcharge revenue being down 13% year over year, we still managed to improve revenue per shipment including the surcharge by 3.5%. This improvement in revenue per shipment plays a key role in improving margins and I'm proud to report that our 4th quarter operating ratio of 89.4% is a record. Our revenue in 2020 was a record $1,800,000,000 surpassing last year's record revenue by 2%. Operating income also grew by 18 percent to a record $180,000,000 I'm now going to turn the call over to Doug for a few more detailed comments about
the Q4 and full year results. Thanks, Fritz. 4th quarter revenue was 476 $500,000 up $33,400,000 or 7.5 percent from last year. The year over year revenue
increase was a result of 6% growth in tonnage per workday.
Our yield excluding fuel surcharge improvement of 4.1% and a 6.1% increase in length of haul. Revenue per shipment grew 3.5 percent to $246.88 Offsetting these tailwinds, fuel surcharge revenue decreased by 12 0.9% and was 10.5% of total revenue compared to 13% a year ago. Moving now to key expense items in the quarter. Salaries, wages and benefits increased 3.6%. This was largely driven by our employees' utilization of paid time off in the quarter compared to the prior year.
You will remember that we offered our hourly employees an additional 5 days of paid time off in 2020 to help them deal with the personal and family issues arising from the COVID-nineteen Health insurance costs were essentially flat year over year with inflationary costs being offset somewhat by lower usage of benefits by our employees. Purchased transportation costs increased 42.1% compared to last year. As a percent of total revenue, purchased transportation costs were 9.4% compared to 7.1% in the Q4 last year. The increase is primarily tied to an approximate 76% increase in purchased truck and rail miles compared to year. In the quarter, we faced pandemic related driver shortages in some markets and we're able to meet the stepped up demand with purchased line haul capacity.
Purchased transportation miles were 16.3 percent of total line haul miles in the 4th quarter. Fuel expense fell by 30.7 in the quarter, while company miles decreased 2% year over year. National average diesel prices were approximately 20% lower throughout the quarter than in the same period a year ago. Claims and insurance expense decreased by 27.3% in the quarter, reflecting decreased frequency and accident severity in that expense line, serving to offset the higher year over year premium costs. To put that in perspective, the 3,400,000 dollars expense decrease compared to prior year would have been favorable by another $1,500,000 if not for premium increases we experienced.
Also to illustrate the volatility in this expense line, I would note that claims and insurance expense was down 24% or $2,800,000 sequentially from the 3rd quarter. Depreciation expense of $34,200,000 in the quarter was 7.2% higher year over year. This is a continuation of the trend we have seen over the past few years as we have grown our terminal network, invested in equipment to lower the age of our tractor and trailer fleet and made meaningful investments in technology. Overall, operating expenses increased by 2.5% in the quarter. With the revenue increase of 7.5%, our operating ratio improved by 4.40 basis points from a year ago.
Tax rate in the 4th quarter was 19.8% compared to 18.1% last year and our full year tax rate was 21.5%. 4th quarter diluted earnings per share were $1.51 compared to $0.81 last year. Moving on to the financial highlights of our full year results. As Fritz mentioned, revenue was a record $1,800,000,000 and operating income of $180,300,000 was also an annual record. Our operating ratio for the full year improved 140 basis points to a record 90.1%.
For the full year 2020, our diluted earnings per share were a record $5.20 versus $4.30 in 2019. In 2020, we made capital investments totaling $231,100,000 We reduced our net debt position by $90,500,000 in 2020 and we entered 2021 with $25,300,000 cash on hand. In 2021, we anticipate capital implemented a wage increase across our workforce, which averaged approximately 3.5%. I would now like to turn the call back to Fritz for some closing comments.
Thanks, Doug. Just a couple more comments before we turn this open open this up for questions. 2019 was a year of investment across the company, perhaps most notably in the Northeast. For 2020, our team was focused on operational execution with an emphasis on integrating the new operations into the broader network. COVID-nineteen provided an unexpected challenge which tested our execution particularly in Q2.
We emerged from the COVID-nineteen business decline and posted records in both Q3 and Q4. Throughout our management team stayed focused on the safety of our employees and customers while continuing to deliver differentiated service and satisfying our customers' freight shipping needs. COVID-nineteen is a continuing daily challenge across our 169 terminals providing a level of unpredictability for both our customers and our operations. We expect these challenges to continue for the near future. At the same time, our strategy extends to 2020 one with a clear focus on execution and delivering the services our customers expect.
This focus supports the ongoing effort to optimize our mix of business while being compensated for all the service that we provide. In 2020, we opened a terminal early in the year near Burlington, Vermont and in the Q4, we moved into our new 200 door cross dock facility in Memphis, Tennessee. The new Memphis terminal was 60% larger than the replaces and should accommodate significant expansion over time. As we think about growth in 2021, we plan to open a new terminal this quarter to service customers in the Wilmington, Delaware area and plan to open an additional 4 to 6 terminals across the course of the year, including our Northeast Atlanta terminal targeted for the Q4. These terminals will enhance our service across the geography while also providing reach into new markets as we seek opportunities to build our long term pipeline of coverage in 2021 beyond.
As 2020 highlights, despite the operational challenges, Saia is positioned to continue to execute our plan into 2021 beyond. With that said, we're now ready to open the line for questions, operator.
Thank Our first question comes from Amit Mehrotra with Deutsche Bank.
Thanks, operator. Congrats on the results. I guess I had one sort of shorter term question and maybe one longer term question. So just on the shorter term side, wondering if you can give us January shipments and weight trends, just kind of how it feels out there from a demand and customer perspective? And then also, you kind of provide OR trends sequentially.
I know it usually deteriorates Q4 to Q1, but if you can give us a little bit of a color there as well. Thanks.
Sure. Hi, Amit. Everybody should have the October November trend numbers, but December shipments were up 3.5% and tonnage was up 5.2%. And in January, shipments were up 1.1% and tonnage up 5.6%. So the January numbers are again against a pretty healthy comp like December was.
January shipments a year ago were up 8%. And we also implemented a GRI on January 18 of approximately averaged approximately 5.9% across our tariffs. So we've seen a little bit of impact to that on the shipment side, but wafer shipments up nicely and we're growing tonnage and hopefully improving our mix.
And then the OR comment sequentially?
Yes. I mean historically, like you say, I mean, it's been a pretty tight range historically. It's gone back and forth, sometimes weather dependent. But we'd say historically adjusting for the accidents and severe weather we can, it's probably flattish quarter to quarter and we would hope to be able to do that again this year. We gave the wage increase on January 1 and we're seeing a little bit of we're seeing fuel costs trend back up a little bit, but we would hope that we can keep it steady with where we operated in Q4.
Okay. That's encouraging. And just I guess more for my longer term question, which I guess is more important anyways. Fritz, if I look at the revenue per shipment, revenue dollars per shipment, it's quite a bit lower than other non unionized LTLs. I mean, it's over 30% below what OD is doing, over 10% below what XPO is doing.
Can you just talk about I know that's a focus of you guys from a pricing and mix perspective and a service perspective, but I was just wondering if you could talk about what the actual opportunity is to narrow that gap and now that you have an expanded or increasing footprint? And then what should be kind of the reasonable expectation there in terms of your ability to continue closing or narrowing that gap over the next couple of years?
Sure, Amit. When we look at that and we highlighted in the call comments, we were very, very pleased with our service performance in the second half of the year through the pandemic, claims ratio is a record low, operations team did a phenomenal job taking care of the customers. And what that does though is that says that when you look at those national carriers that you pointed out where we're at a discount, That we have that sort of level of service, we need to get paid for it because that is service that is some of the best in the industry. We're doing a great job for the customer and it's expensive to run this business. It's a lot of costs tied up in this.
As we point out, none of this should be free. So we've got to charge for it and improve the mix of business to find those customers that really value that outstanding service that we've been able to deliver. So as I think about it, it's not going to happen overnight, but I think we continue to work pretty hard at closing that gap against those larger national carriers. And I think you see the performance we had in Q4 and that's the playbook. We've got to keep executing that focused on getting paid for the service that we're providing.
So I think we've shown that we can do it and now it's we've got to continue to execute that plan.
Amit, I would add too that you see evidence of our work on mix and also the benefit of the expanded geography, if you just kind of compare our yield performance and our revenue per bill performance. So yield ex fuel surcharge in the 4th quarter was up 4.1%. We actually grew revenue per shipment ex fuel 6.5%. So our length of haul was about 6% longer year over year and the mix opportunities that Fritz mentioned, if that continues to help us grow revenue per build in excess of our yield growth, that will help too.
Okay. That's helpful guys. Thanks a lot. Appreciate it.
Thanks. Thanks, Amit.
Our next question comes from Todd Fowler with KeyBanc Capital Markets.
Hey, great. Good morning, Fritz. Good morning, Doug. First, in your prepared comments at the end when you went through the cadence of the last couple of years, the growth and then shifting into execution, we
obviously see that
in the last couple of quarters. As you think about going into 2021 2022, you talked historically about 150 to 200 basis points of margin improvement on an annualized basis. Is 21 a year where you're in that range? Is it something better than that range given the investment that you've made? Just how do you think about the cadence of the OR longer term at this point?
Yes. Thanks, Todd. That's a good question. I mean, one of the things that we focused on, as you rightly point out, is execution through the pandemic. So if we and we felt like that
has gone we've executed well in that environment.
And as we get to 20 2021 beyond, it's really about how what's the overall freight environment look like. It continues to be favorable. I think we can exceed the range that we've talked about historically of $100,000,000 to $150,000,000 I mean we should be above that. Where that goes, how strong the market is, that's to be determined. But I think what's important right now is that we're in a position where we continue to focus on pricing.
That's a favor as we know, a flow through to the bottom line pretty quickly, but we're also proven that we can execute. So I'm excited about the terminal openings we have. So I think that that we should be able to absorb that without really being a drag on our sort of profile. Now certainly if we had to accelerate because there were opportunities that were out there, we would do that. But I think ultimately, I think we're in this nice range where the market is favorable, we see growth opportunities, the pricing initiatives are critical.
I think we continue to improve and likely be above the range that we have historically talked about.
Yes. Okay, that's great. That's really helpful. And then just for my follow-up, can you talk a little bit about your philosophy and your thoughts on using purchased transportation? Structurally, it's a difference between your model and Old Dominion.
And obviously, in an environment like we saw in the second half of 'twenty, with truckload line haul ratio moving up, there can be some impact on the margins there. So how do you think about the right mix of purchased transportation in your network and either bringing that down over time or maintaining it at a certain level? Thanks.
Thanks, Todd. So Doug and I will kind of combine on this answer. I want to start with this leading sort of focus that we have and we're a margin driven company. So we had to we utilized more purchase transportation in the 4th quarter to meet customer expectations, meet service requirements. We priced it the right way.
We found the PT that worked for us and was cost optimal. So we built that into an 89.4 OR. Now over time, certainly you want to look for ways to enhance leverage our own assets where we can. But ultimately, we're going to make a decision around driving that OR. And if we can achieve our OR targets and need to use PT to do that, we will.
But certainly, in time, it's important that we find ways to leverage our infrastructure.
Yes. And I mean, I would add, Todd.
I mean, while the PT on the truck side, I mean, certainly saw a lot of price inflation last year. I mean, the way we buy it with some committed carriers, we didn't feel the extreme volatility in our rates. I mean, in Q4, our truck pricing year over year for truck miles on the PT side was up low single digit rate. So we had some carriers come to us and we did have to pay higher rate increases with some, but on average, we weren't that exposed in any way to the swap market. Our rail pricing year over year is favorable.
I mean, we couldn't get as many rail miles as we wanted probably, but that's a very cost effective way to deal with the longer length of haul that we've got these days.
Okay. So it sounds like if you're flexing up and you have to use more PT and we saw this in the Q4, you're able to get compensated from your
strongest part of the year, historically in the strongest part of the year historically, 2nd and third quarter. We're using PT historically in those time periods to meet seasonal demand and then you have vacations in the second and third quarter. So some of your own capacity is not available. This year, we saw kind of the opposite. I mean, things dipped and our usage dipped in Q2.
But then when business came back strong in Q3, we utilized PT to satisfy the demand and it didn't really tail off like historically you see in the 2nd part of Q4. So we again had to use PT, but to your point, yes, we were able to price effectively and make it work for us. Our service levels didn't deteriorate because we were using PT.
Got it. Okay. Thanks so much for the time this morning, guys.
Thanks, Todd.
Our next question comes from Scott Group with Wolfe Research.
Hey, thanks. Good morning, guys. Can you talk about the renewal trends in the quarter? And then maybe just help us out, big increase in weight per shipment, how to think about yield trends either in January or first quarter, however you want to think about it? Thank you.
Yes. Thanks, Scott. On the contractual renewal side, I mean, we saw a nice bounce back in Q3 and Q4. They were up 6.9% on average in Q3 and 6.6% in Q4. And to us, that's a reflection of the shippers' mindset.
And you saw it too in some of your survey work. I mean, the shippers' expectations for higher rates really across all modes bounce back in the second half. And we felt that in our renewals. And so far in January, I'd say on the yield side, I mean, continuation of what we saw in the latter part of Q4, I mean, I'd say low to mid single digit yields are probably a level that we're I mean, it's a level we're seeing and a level we need to see and maintain. I mean, our cost inflation is on a per shipment basis, it's always seems to always be 3% or 4%.
So we've got a price to get that and more to improve margins.
And Scott, I'd add to that around weight per shipment. I mean, we're very focused on as we look for the optimal mix of business, we're looking for ways to optimize or take advantage of drive the weight per shipment into better categories of freight. So it's all kind of a combination for us. So it's underlying rates and it's also about driving the mix.
And just to clarify, when you talk about low to mid, that's on a
per 100 weight basis. So obviously,
a good amount better on a per shipment basis, right?
Yes. The yield commentaries, yes, on price and then our work on mix and the way we're seeing, we hope to grow revenue per shipment at a better rate
than that.
And then can I just ask the driver pay increase in January, I think you guys typically do it later in the year? Is it just pulled forward? Or do you think that we'll see 2 driver pay increases this year? Thank you.
So Scott, it's we always want to be competitively paid, right? So, it can be a competitive payer. So, we put that in place. We put in we did not have one a similar one in 2020. However, I would stress that we did add additional source of compensation either in paid time off or a one time bonus to effectively change the compensation mix for drivers last year.
So we put it in place this year. We will continue to focus on competitive pay. So could we make a change farther into the year? It could happen, but that remains to be seen. Ultimately, we know it's inflationary environment out there.
We know it's a competitive driver environment. So we have to pay competitively. So we still we monitor that pretty closely and we'll make adjustments as we need to into the year.
Thank you, guys. Appreciate it.
Thanks, Scott.
Our next question comes from Jack Atkins with Stephens.
Great. Good morning. Thanks for taking my questions. So, Fred, I guess kind of going back to your commentary around the plans for the network this year. With the one terminal opening in the Q1 and maybe 4 to 6 more over the remainder of the year, how are you thinking about new versus existing markets with those numbers?
And is there a way to kind of think about the expansion that you plan to sort of make to the network this year on a terminal door basis, just sort of just trying to get order of magnitude increases in 2021 versus 2020, that makes sense?
Yes. So the way I would think about it, the terminals that we've got on the docket, if you will, they're going to look like on average like the rest of the Saia's network, again, on average, right? So Northeast Atlanta will be a larger facility that will be existing obviously an existing market to some extent, but we're also splitting up Atlanta a little bit. So the idea and why the math makes so much sense for us there is that we actually can probably reach customers in this market that historically we haven't been able to service appropriately. So is it new?
Yes. And it's also an existing. So it's a little bit of both. Wilmington, Delaware is effectively a new market. We service it a little bit, but not very well.
So that would be a sort of an incremental opportunity. And the
other ones that we're considering are going
to be sort of are servicing, but with in the outer range of what makes sense, right? So it I would think the best way to think about that is sort of an average sort of terminal size. So Northeast Atlanta will be a larger one and some of others will likely be smaller.
Okay. Okay. Got it.
And also, Jack, just to frame it up a little bit for you, even though we only had one new opening in 2020, our door count was actually up a little more than 4% for the year. So we relocated there was a press release out a couple of months ago on the Memphis relocation into a bigger facility, but we also had 4 other locations in the year. So the door count grew a little bit, but it should be in excess of that if we're successful this year.
Okay. That's very helpful, Doug. Thank you for that. And then I guess from a follow-up question, as you guys are thinking about the different line items from an expense perspective this year, how are you thinking about inflation with regard to cost per shipment in 2021? Can you maybe help us kind of put some brackets around that as we're sort of thinking about this year?
Just because there are a lot of moving pieces with PT and labor, obviously, but you're expanding your network too, which should help.
Yes, I can give you a little color on it. I mean,
the cost per
shipment wasn't it was a little lower than the normal historical trends in 2020. But if you go back to 2019, cost per shipment was up about 3.5%. And like I mentioned earlier, that's just kind of the inflation we're seeing out there, but you're going to continue to see the claims and insurance line drift up. Like Fritz mentioned, salaries, wages and benefits, not only the wage side of it, but you've got benefit inflation pretty consistently year in and year out there. So I think something in that 3% to 4% range on a per shipment basis is kind of going to be the trend.
Our next question comes from Jason Seidl with Cowen.
Thank you, operator. Fritz, Doug, good morning. Thanks for taking the time. Wanted to talk about your business mix, sort of how it's breaking out between consumer and industrial, and if you expect that to change as we move throughout the year as the industrial economy could come back?
Yes, I mean, in terms
of changing, we saw a little bit of
change really in the middle of the year with the pandemic. And we saw residential deliveries get up into the mid teen range on a percent of our shipments. But that's back down in the high single, low double digit range now. In terms of the business, I mean, industrial to us is still 60%, 65% of the freight if you consider if you walk our docks and get a look at the freight we haul. You might see that over time grow a little bit because of the increasing willingness of folks to order heavier weighted goods online and they need delivery of those items in the neighborhoods and such like that.
But I don't see a big shift in the trends other than that.
Okay, fair enough. And I wanted to talk a little bit about TFI and the acquisition of UPS Freight. I would think that it's a good thing for pricing in the LTL market, which has already been favorable over the last decade or so. I wanted to know sort of how often Saia ran into UPS freight in the marketplace? And then just out of curiosity, your agreement your interline agreement with DST Overland about how large is that?
I would assume it's relatively small.
Yes. So just a general comment. I mean, we are familiar with TFI and specifically TST. We've been working with them really well in the last several years. Well run company, good solid performer and certainly wish them the best in their next steps with their acquisition.
We would see UPS Freight kind of in the marketplace, right? So you knew that it was a business that maybe didn't have the same level of investment as the rest or focus that the rest of the LTL carriers had. So I think that impacted them over time. So we were familiar with them in that sort of regard. We don't think at least in the short term that we'll have any meaningful impact on our TST relationship going forward.
So it remains to be seen what the impact is on the broader marketplace, but TFI is a well run company focused on the right things and we wish them every success.
Appreciate the color, gentlemen. Thank you for the time and be safe out there.
Thanks, Jason.
Our next question comes from Jordan Alliger with Goldman Sachs.
Yes. Hi. Just a follow-up on purchase transportation. As you think about going through the year, especially taking into account the terminal openings plus the elevated demand, I mean, is the thought though that you'll be able to handle more of your own staffing, whether it be drivers or what have you, as you move through the year and maybe the PT starts to head relative to the rates you're seeing now? Or do you think that sort of stays at these levels through the course of the year?
Thanks.
Well, I mean, in terms of the current year, I would expect it to moderate a little bit versus the usage we saw to deal with the ramp up out of the shutdown period last year during the pandemic. But over time, if you don't if you're not buying PT,
I mean, you're going to
pay for it somewhere. So it's not like we avoid the cost. It will shift up into another line if you run it with more of your own equipment, your own drivers and there's inflation there. But yes, I mean, naturally as we build density and with our load average improvement, which we saw 1% or 2% load average improvement in the year, we'll be able to run more of it with our capacity over time.
Okay. I mean from an overall, like thinking about the terminals and stuff, the way the market, the ability to access people within your terminal though, you feel pretty good in the markets that you're in? I don't have that availability.
Well, yes, to the extent that you can seek the capacity you bring on, I mean, the driver market has been a challenge anyway. And then you had the difficulties the pandemic brought, it's a challenge. But if we can hire, you'll see us using more of our own power over time.
Great. Thanks so much.
Our next question comes from Tom Wadewitz with UBS.
Yes, good morning. I wanted to see if I could go back to some of your comments on December January tonnage and just see if you could offer some thoughts of whether you think that's maybe January is representative of what you would expect or you did refer to the, I guess, the GRI impact and maybe some difficult comps. Do you think that, is January a little bit of a one off? Or do you think that kind of 5%, 6% tonnage growth is a realistic way to look at what you might expect in Q1 or 2021?
Yes, I mean, it's hard to say. If I look at it sequentially, November to December, historically, we used to see a 6% or so drop off in shipments per day. And this year, it was only a 4% dip. And in the January, we were kind of flattish with December trends and that's usually up. But that's also we usually don't do a GRI in January.
It's been a little later than that the last few years. So in terms of growth, the comparisons obviously get easier. February a year ago, shipments were up 1.5% and tonnage was essentially flat. And then after that, when the pandemic hit beginning in March, the comps get easier for a few months. We'll see.
I mean, there was a little weather late January. There's been some weather this so far in February. So it's a little too early to call any giving a whole lot of guidance on February.
Right. Okay. That's yes, that makes sense. One on other revenue, that was it looked like a strong number in the Q4. Can you just kind of review what might have driven that and kind of how we would look at other revenue?
And also, I don't know, is that flow to the bottom line better than LTL or is that just kind of a similar flow through?
Yes, I'd say it's a similar flow through. I mean, we've had some success in cross selling our SAIA sales folks, cross selling some of our Link X services, some of the logistics and brokerage services that Link X puts together for customers. So we've seen some good trends there.
So you'd be optimistic we should expect that to continue?
Yes.
I mean, I think we also probably experienced some of it with shipment of some medical supplies and such on COVID related moves. But outside of that, nothing specific to call out. It's a pretty small piece of our revenue.
Yes, right.
Fair enough. Thank you for your time.
Our next question comes from David Ross with Stifel.
Yes. Good morning, gentlemen. Most of my questions answered tomorrow at our conference, but just one for you here. A newer service I saw that you guys have is the MABB service, the must arrive by date retail delivery assurance for clients.
How new is this service? How is it helping the volume growth? And then are you able to charge a premium for it? Is one of the premium products?
Yes, I think David, it's we implemented it through 2020, but I think the big thing for us is it's an opportunity to differentiate. We're in a position where we feel like we can we have good control around our network and we can execute our operations. So if there's an opportunity to provide sort of that incremental level of surety for a customer, we will. And there's an opportunity certainly to charge for that. So that's a kind of an over something that we've developed over time.
And those are some of the suite of services that we'll continue to look to offer into the future.
Excellent. Thank you.
The next question comes from Jon Chappell with Evercore ISI.
Thank you. Good morning. First, I think that Northeast Atlanta example is a great one, getting closer to customers. And I'm thinking that's going to help you both in productivity and the margin and also probably in pricing as well. Are there other examples of how you can replicate what you're doing in Northeast Atlanta and some of your legacy markets, maybe Texas for starters that you can speak to?
Absolutely. So, yes, that's not the first time we've done something like that with Atlanta, North Atlanta. So we had 2 facilities in Dallas sort of Metroplex, which were if you'd imagine the sort of Dallas sort of center east part of the geography, we added Fort Worth a couple of years ago. That was an immediate impact, positive impact for us. We've added in the LA Basin, we added Long Beach, we added a second terminal in Seattle a couple of years ago.
Those opportunities, if you look across the geography, we have 2 facilities in Chicago arguably, I think everybody larger than us has 3, 4, 5 in that market. That's a great freight market. That's an opportunity for us to add additional coverage there. Houston, it's long been a great Saia market. We have a single facility there.
So, as we look at our geographic opportunities, it's as much about maybe enhancing the Northeast coverage, but it's also in the legacy markets finding places that we can move closer to the customer. And usually the payback, if you will, comes in multiple sort of legs. On the one leg, you certainly you're providing service to customer moving closer to them. Your cut times are all improved because you're going to meet the service requirements that the customer is looking for. Maybe in the case of North Atlanta, we actually moved closer to a part of town where we have a better chance of recruiting drivers.
So that could be an opportunity or in the case of Dallas Fort Worth a couple of years ago, it was taking some of the freight out of the 2 legacy terminals in Dallas and creating some operational efficiencies. So, there are a variety of sort of value drivers that come out of these. And I think all those markets are ones that we could continue to add. We're opportunistic around it. We look for existing properties are great to transition to, but in some markets, you to make a greenfield investment much like we did in North Atlanta.
Yes, that's
great. And then to follow-up on that same topic, I know you guys don't give guidance, but there's very few scenarios you can kind of walk through where your cash flow is not going to exceed your CapEx for this year. I know you don't like to keep a ton of cash on hand and you're definitely under levered. Do you keep a bit of dry powder for some inorganic growth, if you will? I know you're 4 to 6 terminals this year, but is consolidation or M and A a part of your growth strategy going forward?
So, for us, we want to own strategic assets. So, we've been very focused over time on protecting the balance sheet such that we could make those sort of dry powder investments when they become available. And certainly, we would move quickly if there was something that we could find that would be a nice addition to the Saia footprint. If you go back to 2019, we added facilities that were leased facilities from a competitor that exited the market. We were in a position that we arguably would want have preferred to own some of those, but the former market participant elected they wanted to be industrial real estate investors.
So they weren't willing to sell, but we were interested in operating. So we were okay leasing those. But if there's a similar situation came about and we had the opportunity to buy, absolutely we do it if it obviously, it's in the right location, right price and all that sort of thing. The balance sheet is set up for that and that's sort of purposeful. So that if we can find a way to drive growth beyond 4 to 6 terminals this year, we will.
But it's going to be it's dependent a bit on what we can find in marketplace that makes sense to fit into our network.
Got it. Understood. Thank you, Craig.
Our next question comes from Ari Rosa with Bank of America.
Great. Good morning. Congratulations on strong results here. So I want to talk about the operating ratio. And obviously, 2020 was challenging for a number of reasons, but the operating ratio result was obviously very strong.
Maybe you could share thoughts on both what aspects of 2020 were maybe unique that allowed the operating ratio improvement to be what it was? And then bigger picture, Fritz, it was encouraging to hear you talk about operating ratio for the next year or 2 exceeding the target of 100 basis points to 150 basis points of improvement. Could you maybe talk about any structural barriers that you see to getting to kind of a low 80s type of operating ratio? Is that something that's doable with the current network? Or is there further expansion of the network or further kind of re pricing of contracts that's needed to get there over kind of a 3 to 5 year horizon?
Yes. So when we think about what the opportunity is for the business, we don't see an impediment that says we can't get to those sort of solidly into the 80s OR. We look at the largest competitors in the sort of national footprint. Certainly, they have some reach that we don't have. So that means they can access some customers that we don't have.
So perhaps in those cases, expanding our footprint will help us drive to those sorts of drive the OR because we'll find the mix of business that makes sense. But when we think about the biggest value driver, it's always for us is going to be pricing and mix. So if we take some of the best in class carriers that are out there and we compare adjust for wafer shipment and the length of haul, the biggest difference is often pricing. So if we can pricing kind of really takes 2 forms, it's rate and it's also a mix of business. So, we see the opportunity that's out there.
It's a matter about execution, providing that great service to customers. I mean, one of the things that is a real highlight of 2020 is what our ops team was able to do in the midst of a pandemic. They did a great job servicing the customer. That puts us in a position that when we go have those conversations with the customer, if it's somebody that's new, we're in a position we can say, listen, our key service statistics are as good as anybody's, arguably better than many. So this is what it costs to do business with Saia.
On the flip side, you're in a position where you've got to the place where you're competing on an equal footing. So I think that there's really not a structural disadvantage. We just have got to continue to reach new customers, expand the network to support this. It all kind of wraps together.
Great. That's really terrific color and looking forward to seeing you guys get to that level. Just for my second question, one
of the things we had heard about from
a number of carriers was just about congestion, particularly in the rail network and maybe service levels not being quite what we would have
hoped it might be.
Maybe you could talk about what kind of impact that had on results in Q4 and if you're seeing any improvement as we now are in the Q1?
Yes. No change really yet. I mean demand is still strong. So we weren't like I mentioned earlier, we weren't able to get as much rail capacity as we might have used. Our mix of PT miles was about 1 third rail in the 4th quarter and 2 thirds truck.
And usually it's a little more balanced, maybe 40%, 45% rail. So we've that had the effect of raising our PT cost a little bit because we were in more on truck than we would like to. So yes, I mean the service wasn't great, but primarily I think it's just a factor of the congestion on the rails with all the demand.
Okay, sounds good. Thanks for the time. Sure.
Our next question comes from Stephanie Benjamin with Truist. Hi, good morning.
Hey, good morning.
I know that you gave kind of your net CapEx expectations for the year and have obviously walked through your plans from a terminal expansion standpoint. But maybe you could walk through some other investments you may have, anything behind technology or other productivity initiatives that you're expecting to roll out or enhance this year? Thanks.
Sure. Just in terms of the mix, I mean, we expect to spend more on real estate year over year. Some of that may very likely be in the form of raw land. On the equipment side, you'll see this year weighted more towards trailers than tractors or tractor buy will be down this year, year over year, probably a third or a half of what it was a year ago, but the trailer purchase will be ramped up. And part of that's more pups required with our expanding network and our length of haul.
We're also seeing some opportunities with national accounts to grow our business and pick up some efficiencies if we're able put trailers with the customer and then swap them, wait till they're full and then come pick them up and swap them. So we're going to have some more trailer buys to be in a position to offer those to customers. So the mix on the equipment side look a little different, but we continue to see benefits from lowering the age of the fleet and of course all the safety enhancements that come with our newest tractors. We think we're getting the benefit of that in safety and claims expense over time. So we'll continue to invest to keep the age of the fleet down and to get all those technologies.
Yes. I would just add that we're going to be we're on the safety equipment side, we're very focused. We're an early adopter of any available technology there. So that's part of our plan. We'll roll out new ELD device this year for fleet handheld device, all those things that I think they had not in a position yet to point out the productivity enhancements, but they certainly will improve our driver experience and our customer experience along with that.
And we continue to invest internally around data and analytics. The pricing themes that we have are really driven about our ability to capture and understand the cost that we have handling customers' freight and being in a position that we know what to charge for it. So those technology those investments are ongoing They take the form frankly of both capital and expense, but we'll those are so critical, we'll continue to invest and reinvest in those areas.
Great. Well, I really appreciate the time. Thank you.
Thanks.
Our next question comes from Tyler Brown with Raymond James.
Hey, good morning guys. Hey Tyler. Hey, I apologize if this is in the 10 ks, I just can't remember, but can you refresh us on the tractor and trailer fleet ages?
Yes, we've worked at the tractor age actually a little bit below 5 years now, coming into 2021. On the trailer side, it's
probably sub-eight these days and
likely going lower like I said with the expansion on the trailer side this year. Yes. And then Doug,
you made some interesting comments on that. So are you seeing more drop in hook requests? Does that feel like a trend change? Or is that just a market you weren't participating in quite as much in the past?
Probably a little bit of both. I mean,
we certainly gained pickup efficiencies if we have enough equipment to do that for customers. I'd rather go there and pick up a trailer with 10 shipments on it than go and pick up a trailer each day, pick up 1 or 2 shipments. So I'd say it's probably a little above.
Okay. Okay.
We're certainly in a position to be able to invest to take advantage of it.
Yes. Okay. Interesting. And then so Fritz on the terminals that you are adding this year, you talked a little bit about this, but so are those going to be greenfield? Are they going to be purchases or leases?
Just how does that break down? I know Atlanta is a greenfield. And then just big picture, what is your long term philosophy on door ownership? Do you guys have a target there?
So, Tyler, yes. So the North Atlanta as Greenfield, I would expect the others will be a combination of lease and purchase. They will likely be because of that will be legacy facilities that are in the market or available I should say. Ideally, you want to own the strategic assets, right? So if you're in a position that you can have ownership in key markets and you've got the key asset with that, We'll do that.
Now, unfortunately, in some cases, as we've seen, you can't get that get control of the asset, but you can get there pretty closely if you get a good effective market based lease with some tenure to it. So it's in a position where we can effectively have a long term asset. So it hasn't changed for us. We prefer to own more, but we need to be in the market. So sometimes we're willing to compromise if we can't own.
Okay. Okay. And then my last one here. So, Fritz, you talked a little bit about improved service. But can you give us any color on kind of what on time percentage is?
I had thought that your prior goal was maybe around 97%. Could you maybe even talk just using that as a bogey if you're better than that these days?
Yes, we would say in the Q4 at 98%. So we continue to push that and that's critical for the customers. I mean, think about it like this, if you can do what you say you promised to a customer, you have a better opportunity to charge for it. If you take care of their freight, there's an opportunity to charge for it. So that's critical.
Mastio survey data came out in Q4 and across the board we saw improvement. That was exciting to see. So all those things are points of differentiation and those are an opportunity for us to charge.
Yes, absolutely. I appreciate the time guys. Thanks.
Thanks, Todd.
And we'll take our next question from Amit Mehrotra with Deutsche Bank.
Hey, thanks for letting me have a couple of follow ups here. Fritz, I was just wondering if you can give us an update on the new Memphis facility. I think that's a pretty big deal for the network from a density and cost perspective. If you can just help us think about the impact of those two things from opening that Memphis facility, I think back in October?
Yes. No, it's a beautiful facility, well positioned, got plenty of capacity, really is ideal for its position, its location and the ability for us to grow for the foreseeable future of that facility. So that's been fantastic. I don't really have a carve out for that. I would tell you that it's that's part of the long term growth of the company, right?
That's sort of a foundational brake facility for us and it's all part of supporting our longer range growth.
But has it allowed you to close smaller brake facilities as maybe you guys have been able to build direct loads between major demand centers. I mean, is there kind of a cost melt away that occurs by allowing
that facility? Yes. Good point, Amit. I mean, there's been some of that. I don't have a number to break out for you, but that's certainly having a well positioned brake facility like that with plenty of capacity.
Certainly, our regional sort of next day brake operations that we had historically as a regional carrier. As we become a national carrier, we don't need that anymore. And having a Memphis facility position to sort of absorb that, that's fantastic. And that's part of the success that you saw in the Q4 and I think it only gets better going
forward. Okay. And then just a couple of very quick ones for me for Doug. The yield ex fuel ticked down a little bit sequentially. We typically don't see that.
And length of haul was also up sequentially. I guess weight per shipment was up sequentially. We typically don't see that either Q3 or Q4. But can you talk about why Yield ex fuel actually ticked down sequentially? Was it just the weight dynamics or is there something else?
Yes. I mean, you mentioned all the factors there. Length of haul would help you a little bit and the weight was the weight's been really strong. Sequential down doesn't really bother me though with the kind of revenue per shipment ex fuel we're getting. But yes, you've got to weigh those factors.
And then D and A, I know you guys are picking up CapEx a little bit, CapEx intensity. What's the headwind on D and A that we should expect this year?
Yes. I mean, I think you
should still figure low double digit percentage change year over year. But I mean as a percent of revenue, it probably tracks about the same as it did in 2020.
Got it. Okay. Thank you very much. Appreciate
it. Thanks Amit.
And that concludes today's question and answer session. At this time, I'd like to turn the conference back to Fritz Holtzgre for any additional or closing remarks.
Thank you to all on the call. We appreciate your interest and long term support of Saia and look forward to an exciting year in 2021 as we continue to