Good day, and welcome to the Saia Incorporated Hosted Third Quarter 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Saia's Executive Vice President and CFO, Doug Cole. Please go ahead, sir.
Thank you. Good morning, everyone. Welcome to Saia's Q3 2020 conference call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. 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 exact risk factors that could cause actual results to differ. I'm going to go ahead and turn the call over to Fritz for some opening comments now.
Good morning and thank you for joining us to discuss Saia's results. 3rd quarter results include record revenue and operating income for any quarter in the company's history. This is quite a rebound given the dramatic volatility of business levels felt in the 2nd quarter in which revenue ended down almost 10% compared to the year before. In the 3rd quarter, daily shipment activity continued on the improving trend that we saw develop in the middle of the second quarter. Shipments per workday rose nearly 1% compared to last year.
We also continue to see shipping patterns geographically as customers flex their supply chains to adapt to the new normal in our pandemic stricken country. Weight per shipment was volatile throughout the quarter and was down 1% for the full quarter, so tonnage per work day was flat year over year. The pricing environment remained stable throughout the pandemic. The underlying cost structure of the industry remains inflationary with the pandemic heightening a challenging driver market and adding to the increased costs of purchase transportation. Operators continue to focus on pricing in the face of these operating pressures.
I'm extremely pleased to report that revenue per shipment excluding fuel surcharge rose 4.7%. Despite fuel surcharge revenue being down 17% year over year, we still managed to improve revenue per shipment including the surcharge by 1.6%. This improvement in revenue per shipment plays a key role in improving margins and I'm proud to report that our 3rd quarter operating ratio of 88.5% is a record for any quarter. The unprecedented conditions brought on by the COVID-nineteen pandemic continued daily in all the markets that we operate. The conditions require us to adjust our operations in unison and I remain very pleased with how our team has come together and adapted to our new normal.
From the start, we focused our efforts on keeping employees and customers safe, changes to our daily procedures that developed out of necessity have become standard practice in many areas of company operations. Employees that are able to work remotely are still doing so and plan to continue this practice for the foreseeable future. I'm now going to turn the call over to Doug for a few review of the Q3 financial results.
Thanks, Fritz. I'll start by providing some comparisons to the Q3 a year ago. Revenue was $481,400,000 up $12,500,000 or 2.7%. The flat tonnage per Orpane in the quarter, the revenue increase was driven by a 5.5% increase in yield, excluding fuel surcharge, as well as a 6.1% increase in length of haul. As Fritz mentioned, fuel surcharge revenue was a headwind to the growth being down 16.7% and was 10.4% of total revenue compared to 12.8% a year ago.
Moving now to some key expense items in the quarter. Salaries, wages and benefits increased 0.8%. Our average employee count through the quarter was approximately 5.8% lower than the prior year. Health insurance costs were essentially flat year over year with inflationary costs being offset somewhat by lower usage of these benefits by our employees. Purchased transportation costs increased 11.7% compared to last year.
As a percent of total revenue, purchased transportation costs were 8.3% compared to 7.6% in the Q3 last year. In the quarter, we used purchase transportation where faced with pandemic related driver shortages or imbalance shift in some markets and where it was advantageous from a cost standpoint in others. Fuel expense fell by 23.9% in the quarter, while company miles grew 1.4% 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 rose by 52.1% in the quarter reflecting increased frequency and accident severity in net expense line and higher premium costs versus the prior year.
To put that in perspective, on the approximate 4% or 4,000,000 expense variance to the prior year, dollars 2,000,000 was related to premium increases. Also to illustrate the volatility in this expense line, I would note that claims and insurance expense was down 34% or $6,400,000 sequentially from the 2nd quarter. Depreciation expense of $34,200,000 in the quarter was 9.2% higher year over year. This is a continuation of the trend we've 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. So with total revenue up 2.7% and total operating expenses up only 0.6% in the quarter, our operating ratio improved by 180 basis points to 88.5% compared to the 3rd quarter operating ratio of 90.3% a year ago, which was a record.
Operating income of $55,200,000 was 21.7% higher than last year and with a reduction in interest expense and a slightly lower tax rate than last year, our net income rose 26 percent to $41,500,000 Our tax rate for the 3rd quarter was 23.7% compared to 24.2% last year and we expect 4th quarter tax rate to be between 24% 25%. 3rd quarter diluted earnings per share were $1.56 compared to $1.25 last year. Year to date, we have made capital investments totaling $205,300,000 of which revenue equipment represents approximately 65% of that spend. For the full year, we now expect capital expenditures will be approximately $225,000,000 We ended the quarter with $120,900,000 in total debt and with $25,500,000 in cash on hand, our net debt stood at $95,400,000 This compares to net debt of $131,600,000 dollars at the end of the Q2 and $165,000,000 at the end of
the Q3 a year ago.
I'll now turn the call back over to Fritz for some closing comments.
Thanks, Doug. Before we open the call for questions, I'd like to again comment on the professionalism and effort given by our employees through these volatile times. We've had several 100 employees working remotely from home. The vast majority of our essential employees don't have that option. These dedicated professionals have worked steadily this year to continue to provide great service for our customers.
Our on time service standard of 97% was met in the Q3 and our cargo claims ratio improved 25% from the prior year to a record 0.62% of sales. On our current business conditions, we continue to see solid volume trends and our opportunity to improve pricing continues. Our contracts renewed with customers in the 3rd quarter were up an average of 6.9%, a sequential step up from an average of 4.5% in the in the The operation will not only support our Memphis market, but also serve as an important hub operation supporting our national network growth. Although in smaller markets, we replaced 2 Texas facilities with larger facilities and additional door capacity. These investments continue to support our offer in providing improved service for our customers.
Moving into the Q4, our focus remains 1st and foremost on the health and safety of our employees and customers. While COVID challenges remain and hotspots continue to move through different terminals at our company as well as those of our competitors. We've been able to meet the challenge through diligent planning, focus on execution and teamwork across the network. With that said, we're now ready to open the line for questions, operator.
Thank you. The first question will come from David Ross with Stifel. Please go ahead with your question.
Yes. Good morning, gentlemen.
Good morning.
Good morning, David.
Fritz, maybe talk a little bit about the capacity situation that's out there and the pressure on purchased transportation. The main concern I know for the Saia network is just getting a truck more so than the price. But if you look across your PT providers, are most of them under contract? So do you have essentially committed capacity at a rate on those lanes for some time or is the predominant capacity coming from spot?
Yes, David.
On the PT side, we've got 90% to 95% probably of our PT models under contract. So, we weren't exposed to the spot market in any to any great extent in the quarter. Our usage was just up. I mean, in some markets throughout the quarter, we struggle to find drivers and most of that's pandemic related. And whether it's a line haul driver here or there or city drivers calling off because of the coronavirus, We found a need, the need was greater this year, but we're pretty good at it.
We use PT to our advantage when we can in certain lanes and we stepped it up a little this quarter, but I think the way we operated in total shows that we use that as our benefit in the past and had to do it this
quarter. David, I would add it. I think it's particularly important that we tap that resource right now simply because as the pandemic has evolved, we see a lot of changes in our customer supply chain and shipment patterns. So, this has given us flexibility to match that where we needed to.
And is there any specific bubble period where a lot of those contract rates are going to come up for renewal in say Q1 next year, Q2 next year?
No. A lot of them are long standing relationships and they go kind of ratably through the year. But to give you an idea, I know from Q2 to Q3, there was a spike in truckload rates, but really our average PT truck mile cost us about the same, well, really right on the number that we were spending in Q1. So a step up from Q2, but because of our relationships, it was really flat, our cost per mile was Q1.
That's terrific. And just last question on the energy sector because Saia has got more of a legacy operation there and oil and gas has been important over the years. What's your view of that currently? How is that maybe holding back results a little bit if demand is yet to recover there?
Yes, if you look at our Houston region year over year that's actually down. I would comment 2 things that some of our best density and cost structure that typically is great freight, but we've been able to flex those operations to match those sort of changes, so it hasn't really been a drag on the OR. If we'd had this conversation say 4 or 5 years ago prior to the Northeast, it would have been a much larger percentage of our book and it's shrunk. We'd sure like to have that be growing as the energy sector would be good freight, but the reality of it is that as we've become more of a national operator, that exposure to the energy sector is less. And fortunately, we're able to flex a bit in that those markets and adjust our model and grow other elements of the business to offset some of that.
Excellent. Thank you very much.
Thanks, Dave. Thank you
for the question. The next question will come from Jordan Alliger with Goldman Sachs. Please go ahead with the question.
Yes. Hi, morning. Just curious if you could give a little more color on what you're seeing from a volume perspective as you went through September and thus far into October. Is it I know we the recovery is certainly well underway. I'm just curious, is it if you could give some additional color on the exact trend or is it running better than normal versus what you might have thought as we move through October?
Thanks.
Yes. Thanks, Jordan. Throughout the quarter, it was in terms of shipments, there were some swings, but they were kind of at a very low base. July was up 1.5%, August was down just fractionally and then September was back up 1.4%. And normally, seasonally for us, you see kind of a low single digit decline in shipments per day when you go from September to October.
And it's still down on a shipments per day basis, but it's running down less. So, seasonally, it's a little better than normal so far in October, but we've been hit with some recent weather the last few days. I mean, we've all been hit with that. It's unusual to have ice and snow in October in Denver and in Texas, big markets like that. But there's weather every year in the Q4, but that's caused some volatility this week in our shipment account.
Just as a quick follow-up, as you think ahead past October into November December and into next year as you talk to your customers, is there generally a sense of optimism of that continued improvement or is it still a bit of uncertainty out there, kind of hard to get a full read on what may happen from a volume standpoint?
Yes. I mean, there's still a great deal of uncertainty for all of us, customers, employees and the like. But I would say that our contractual renewals being up 6.9% in the quarter, which was a step up from Q3, definitely shows me that the shipper feels pretty good about their business and they want to make sure they have capacity next year, whether it's truckload, intermodal or LTL. So, I'd say the shipper is probably cautiously optimistic, but lot of news coming out in the next few weeks for sure with the election and vaccine and things like that.
Great. Thanks very much.
Thank you. The next question will come from Amit Mehrotra with Deutsche Bank. Please go ahead with your
Quick question on the 6.9% contract renewals. That's obviously a big number and I'm just trying to understand how much of that is cyclical in terms of the opportunity to raise prices on a certain segment of your customers? I know you guys have implemented more technology and tools to get better on pricing. And so I wanted to kind of if you could help us deconstruct that between kind of the cyclical and what you guys are just getting better at doing and then what the runway is there to kind of further optimize the pricing via technology and maybe more dynamic pricing tools?
So Amit, when we quote the contractual renewal, those are all the contracts that came up for renewal in the quarter. So it's reflective of the data analytics that we went through to assess the contracts that came up in the period. So, those kind of come up ratably during the year. So we push pretty hard on those largely the cost structure in the businesses, we've got to cover that into next year. So it's as we looked at our pricing opportunity and we've got a better understanding of the customers' freight movements, what the freight looks like, those characteristics, we try to price accordingly.
If I look at where we stand from a revenue per bill perspective versus the market and what the opportunity, there's still a lot of runway for us. So, I don't know that I can characterize where we are in that cycle, but that alone tells us that we have opportunity. And as we extend this network into more of a national network that's going to drive the pricing and margin opportunity for us as well. So, I think that's reflective of the business. So, to go back to your question, that's reflective of the business that was available to us in the quarter, and the analytics supported that.
And we keep pushing that because we see that this is an expensive business to operate. So every opportunity we can to capture that and generate that return is important.
Okay. Thanks for that answer. And then just a follow-up on the OR. One maybe near term and then kind of more like over the next 12 months question related to the OR. The operating momentum that you saw in the Q3, does that extend into the Q4 in terms of maybe muting the typical step up that you see in OR in the Q4, if you could just talk about that?
And then Fritz and Doug, I think next year both volume both shipments and weight should kind of be on the right side of the ledger, hopefully crossing our fingers that that should happen. What's the right kind of I hate asking the incremental margin question. It seems like that's always what I ask about. But like what's the right way to think about the incremental margin on that opportunity in the context of pricing and all the productivity initiatives you guys have implemented?
I'll take the first part and tell you how we're thinking about Q3 into Q4. I mean, typically for us, there's a step up there in terms of OR degradation. So 150 to 200 basis points in our view is kind of our adjusted sequential move when you get into Q4. Usually not only you miss you lose a couple of days, but you also end up with some half days here and there around the holidays. So that typically explains it and that's no different this year.
I'd say, I mean, a couple of things we're thinking about, depreciation for us will probably will step up in the Q4. We took some equipment later in the Q3 and that quarter didn't get hit with a full impact of depreciation. So, there's going to be a step up in depreciation. We have seen our employee usage of our healthcare benefits trend back to normal and that typically happens in the Q4 anyway as folks meet their deductible and stuff. But I think we're walking into it thinking about 150 to 200 basis points with some headwinds in those areas for the Q4.
Yes. Amit, I think one of the things that was particularly exciting about the Q3 and frankly year to date, even the challenges we had to deal with in the Q2 and I go back to the Q1, our plan at the beginning of the year was really about focus on execution and capitalizing on the data analytics and driving the pricing, driving our cost optimization. And I think we've done a pretty good job with that so far this year. So as I think into next year, we've long said that in a reasonable sort of macro environment sort of GDP growth, we ought to be in 100 basis points to 150 basis points sort of improvement year on year. Now depending on where we end up this year, maybe that changes a bit to the higher side or if the environment next year is stronger.
I think what's important is that as we have managed through this pandemic, we have sort of tested kind of our capabilities around how we can plan and adjust to this. And I think the exciting thing is that it's confirmation to us that our longer term strategy is something we can execute on, and we have the opportunity to kind of drive the OR over time and I don't see anything that would block us then. I think the macro environment and what's going on there, that would be the chief impediment. But if I focus on the things we can control, we feel pretty good about what we can do to execute.
Yes, but Doug, you've talked about fixed variable being kind of like that 35% fixed cost before. Has that come down a little bit as you guys have made some progress on the productivity side? Like what's the new baseline in terms of thinking about the overhead costs in the business?
With the growth we've had in all of it, I mean, it's kind of a moving target for us. I mean, we've got plans next year to step up our capital investments even further, probably closer to 13% or 14% of revenue from the 12% to 12.5 ish we've been running. So it's kind of a moving target. So and then you can't look at it in a vacuum either. The environment is happening around you all the time and whether it's economic, manufacturing, pandemic, I just I don't like to go from quarter to quarter talking about how it's moved because it's kind of it moves around a lot depending on the macro.
Okay. All right, guys. Thanks a lot. Congrats on the good quarter. Appreciate it.
Thank you for the question. The next question will come from Jack Atkins with Stephens Incorporated. Please go ahead.
Hey, guys. Good morning and thank you for the time. Just maybe going back to the October commentary for a moment, could you maybe and I don't know, maybe I just missed it. Doug, could you give the tonnage trends you're seeing so far in October and maybe what you saw in September as well, if that's possible?
Sure, Jack. So in
September shipments were up 1.4% and tonnage was up 2.1%. So a slight increase in wafer shipment up about 0.7%. And so far in October, shipments are up 3.8% year over year and tonnage up 6.3%. So we talk about how volatile weight has been. I mean the trend so far in October has been favorable.
Weight per shipment is up 2.4%, but just in the last 2 or 3 days, we continue to see the volatility there. Okay.
That's great. That's fantastic. And then I guess maybe kind of shifting gears and thinking about 2021 for a moment, just kind of going back to the commentary a moment ago about CapEx as a percentage of revenue stepping up next year. How should we think about, I guess, a couple of things. 1, where do you think available capacity sort of stands in the network today to be able to sort of take advantage of industry growth as we go into next year?
And then secondly, how are you guys thinking about terminal expansion plans just kind of broadly in 2021? I know 2020 has been sort of muted from a terminal growth perspective for obvious reasons, but is the plan to sort of reaccelerate that next year? And maybe it sounds like it is.
Yes. In terms of going into next year on the terminal side, I mean, we've got a pretty healthy real estate budget out there. And so far, we've got one planned opening in the Northeast in the Q1. And beyond that, we've got a number of things we're looking at, but we'd like to step it up.
Yes, Matt, I would add that on the pipeline in the next year, we've got opening a North Atlanta terminal and then we've got opportunities across the network around we'll be looking at replacing some facilities in legacy markets and then we are very, very vigilant to opportunities to kind of improve service, move closer to the customer. I'll point to the Atlanta example as a great one that has long been pursued and there are other markets like that where we would pursue similar strategies. Not quite in a position to kind of communicate where those are yet. We're still working on that, but there is a list that we kind of monitor and assess as they become available.
Jack, I forgot I on that last part of the question. I forgot the first part. I would say that in terms of capacity, I mean, we think we've added a lot of doors in the last few years. I think in terms of a door standpoint, probably 15% to 20% capacity. I mean, you've got your pressure points, but in general, we've got capacity there.
We've invested a lot in equipment. We feel like we've got the power, but the 3rd component of capacity is drivers. I think we're not the only one that's going to be challenged on that front over the next several years. So, that would be a factor now, but that's where we feel like our experience and our relationships on the PT side really help us there. I mean, we would have used more rail in the quarter if we could have have gotten it from the providers.
That's a really advantageous cost per mile. We've seen some shift in kind of the lane balance. Some of that's probably pandemic related and lanes that used to be headhaul flipped to backhaul. Oftentimes we'd have used more PT if we could have found it.
Okay. That makes sense. Thanks again for the time guys.
Thanks Jack.
Thank you for the question. The next question will come from Scott Group with Wolfe Research. Please go ahead.
Hey, thanks. Good morning, guys. So I want to go back to the PT discussion just for a second. So in past periods where we have seen tightness in truck markets, we have seen some headwinds from PT in the past. Is there anything that you're doing differently to protect you from PT?
I understand Q3 was not an issue. Anything you're doing differently from a PT standpoint for next year? And as everyone thinks about benchmarking versus OD, they do very little PT. Do you think about making any longer term changes to meaningfully reduce your PT exposure?
Well, I mean, a lot of the ability to reduce the PT comes from maturity of your network. I mean, if you've got density and you're running 4 schedules out of a market. And the last one is only the last schedule is only 60% load factor or something like that. If you add another schedule to it, that partial load becomes a smaller percentage because you're now you're on 5 schedule, so your partials become smaller. So, the benefits the way to drive that number down is to build density and run more of your own equipment out of a market, but until you have that, you don't want to run schedules empty into a market and have to pay to bring them back to the headhaul market.
So, I mean, one of the ways to move that number is just from maturity. But we're not upset when we have to use it. I mean, we've got great relationships. Our cost per miles have been pretty stable for us. Rail cost per mile is very advantageous.
So, over time, I suspect it naturally probably comes down, but it's not there's not an urgency to bring it down.
And the key thing, Scott, just to build on Doug's point is, I mean, it's part of the optimization decision you're making is you're assessing what the market opportunity is from a revenue perspective and you build the line haul network around that in a cost advantageous way. So, there will be times where in the quarter we provide service to a customer, maybe we had a lane balance change, let's take advantage of the PT. If that becomes a sustainable or a long permanent change, then you maybe refactor how you hire, how you deploy your own assets there. So, as we go through a growth stage here and become more of a national network, those are decisions that we have to make ongoing. In the Q3, workforce utilized PT.
As Doug described, the cost piece of it made sense. Pricing was there, we could provide the service and we won the customer. So that's important and then you optimize from here.
Okay, great. And then, can I just the weight per shipment was up a little bit in September, up a lot in October? Just some thoughts on what's driving that acceleration? Is that a comp or is the overall weight per shipment picking up and just thoughts on why that's happening? Thank you.
Yes. I mean across our book of business, I mean, our field customers were pretty much flat on a weight per shipment basis in the quarter. And actually, we've been taking some pricing action with both national accounts and 3PLs just as we do across the year as the business requires it. The 3PL weight per shipment actually improved in the quarter and national was down just slightly. So we can't really put our finger on anything driving it, but I mean ISM numbers were strong again in September.
So, it could be just continued replenishment of inventories and the manufacturing base kind of coming back to life.
Okay. Thank you, guys.
Thanks, Scott.
Thank you for the question. The next question will come from Todd Fowler with Bank Capital Markets. Please go ahead.
Great. Thanks and good morning. Fritz, on the contract renewals here, the 6.9%, I guess, looking out, do you see any reason why 2021 can't shape up to be like a 2018 year where you were able to see high single digit, low double digit type contract renewals? I think in the past, you talked about the differential with some of your pricing.
Yes. I mean, I think what you'll see, it's a little bit of a walk, Todd, going forward. I think those sort of mid single digit numbers totally are I think within reach. I think some of it is impacted by what the book of business that comes up in a given quarter around what the opportunity is there, but I can say this, unequivocally, the underlying cost structure of the business is inflationary. So, we have to keep pushing the pricing and the better data and understanding we have of our customers' freight and what the requirements are for us, that's an opportunity for us to continue to push not only the base rates, but then the related accessorial rates and such.
Those are it's still critically important because it's a complex business, costs are underneath our challenging, drivers are challenging and it's just important to keep pushing that.
And then is there a reason why I mean, for the acceleration in the contract renewals, it feels like that you could set up for more than the typical margin improvement that you'd expect to see that 100 basis points to 150 basis points annually. Is that just the cost inflation that you're expecting? Or is there just kind of something else that's holding back maybe the ability to expand margins in a improving pricing environment?
Well, keep in mind a couple of things with the contractual renewals. That's sort of indicative and as you all know that these contracts are effectively pricing agreements and you don't have a committed volume that comes along with that. But I think it does give a very, very strong indication of what the pricing environment is going forward. I think that if we have a favorable ISM sort of macro environment, I don't see any reason why we couldn't continue that trend, but there are a lot of factors that come into play there. But I think everybody in the market sees the same issues that we do around cost and I think that's a disciplined place to operate a business right now and it needs to be frankly based on the underlying cost structure.
Yes, got it. Okay, that makes sense. Just a last quick follow-up, as you think about the environment that you've moved through this year, I know for the last couple of years, you've been working on some productivity initiatives within the organization. Can you give us just an update on kind of the ability to drive more productivity and if there's any things that are front and center here on a near term basis? Or is it more gradual improvements?
And I know that the operating environment is obviously pretty choppy right now, but just curious your thoughts on the ability to drive more productivity going forward? Thanks.
Yes. I think the opportunity remains there for us to continue to make better decisions around everything from using our line haul to scheduling our city operations. Those are all tools that we're building into our sort of DNA, if you will. If you look back at Q1 or Q2, I should say, one of the great benefits that we had in the quarter and that's tough to see in the results that we had then because you saw the great decline, but we were able to manage down the cost structure in a way that we could maintain productivity. And that historically has been a challenge for us to deal with the up and down there, right.
And those tools allowed us to kind of operate in a very volatile environment there and they've allowed us to as we've grown out of that, you see the margin improvement. So it's not necessarily apparent in the sense that it's a big flow through on cost per se, but it's certainly around efficiency and we're able to support the customer. And I think as we grow out of this, I think that's what's going to help drive those incrementals and over time. And I'm really excited about how those tools have helped us through this process, this volatile period, and it will continue to allow us to execute into the future.
Yes, okay. Makes sense. Thanks for the time.
Thanks,
Todd. Thank you.
The next question will come from Ari Rosa with Bank of America. Please go ahead.
Hey, good morning guys and congrats on the nice results here. Maybe you could talk about specifically dig into a little bit more what you're seeing in terms of that cost inflation and to the extent it's possible to quantify that in terms of what your expectations are for the next couple of quarters? And particularly on the wage pressure front, we're hearing a lot of talk about just difficulty to find drivers and dock workers. Maybe you could talk a little bit about what you're seeing there?
Sure. I mean, the cost inflation, I mean, there's some of the numbers we talk about, the same numbers kind of every year. I mean, we're seeing high single digit to low double digit healthcare inflation around health and pharma. For us, depreciation will step up again next year. Part of that's in higher spend, but part of it's paying a little bit more for everything.
On the wage side, I mean, that's a constant pressure. That's not going away and it's not just drivers. I mean, finding mechanics, finding supervisors, managers, there's cost pressure there and we haven't announced anything on the wage front, but we're not going to fall behind in a market. We've got to be competitive and provide a proper wage in a market and and a number that will attract good people. So, it's becoming increasingly difficult on the driver side.
There's just besides the demographics, there's just other pressures there and we'll see inflation. I mean, those are the main items that come to mind.
Got it. Okay, that's helpful. And then maybe if you could talk about the terminal footprint as well. Obviously, we saw what you did there with Memphis and you mentioned something in the Northeast that's scheduled for Q1. But maybe if you can talk about what you're seeing in the marketplace in terms of where real estate prices are for industrial space and if there's some opportunities maybe to preemptively get ahead of that or how you're thinking about maybe adding to the service center footprint for the next couple of quarters?
Yes, look, the opportunity around real estate certainly if you look at sort of edge markets on the coast, clearly a lot of inflation there around underlying real estate cost. I mean if you're looking at a sort of green space or greenfield opportunity, in many cases you're competing against industrial real estate investor who may be putting a last mile warehouse or something like that in there. So those are pretty challenging markets. You add in the zoning pressures that are out there. So, over time though, what we have found is there have been opportunities to participate in sort of these our network expansion by pursuing opportunities maybe have been exited by some of our larger competitors in many cases.
Other cases where we haven't been able to find those sort of legacy assets, we have moved in and built North Atlanta as a prime example, but those are challenging, right? You've got to get the zoning along with that and that's the cycle there takes quite a bit of time off and they get those things built. But I would say this that similarly if you go back to 2019, we saw a Northeast competitor exit the market and we quickly jumped into that and took advantage of the assets that became available. And I would say if you look at our balance sheet, we're in a position where although we're going to continue to invest where we need to support our growth, we are also in a position that if those assets become available either through an industry change or a shakeout or something, we're somebody that's available to take those assets. And we have the bandwidth to handle that.
So, we're actively looking both at existing assets as well as looking at new space or new full on the footprint. So, there's a lot of opportunity out for us. It just takes time to execute real estate transactions.
Is there a particular region that you think is it still focused on the Northeast or are there other regions that you're looking at in terms where you'd most or where you see kind of growth as being most advantageous?
We're kind of at a stage when we started the Northeast expansion, we talked about, geez, 20 to 25 terminals probably fills in that geography and we're right around 19. And so I think that if we find a few more in that market, they're more tuck in, fill in sort of facilities. If you look at our broader sort of landscape, we're at 169 terminals. And if you look at some of the high quality operators that are larger than Cyon, They're sort of over 200, anywhere up to 230 or 40 sort of terminals across the country. So, for us, the next opportunities are more about doing things like in Atlanta where we've added a second terminal there or we'll be adding a second terminal.
Chicago would be one where we could add a couple potentially. Houston, which is a great market for us. We've got great recognition name recognition, we do an excellent job, we've got great customer relationships. Potentially down the road, there's a second terminal opportunity. You go back to Dallas, Texas, another strong market for Saia, we've added over the last couple of years or last 2 years ago, added Fort Worth.
So, it gave us 3 terminals in that market. So, for us, it's as much about building density and perhaps in some of our legacy geographies, if you will, move closer to the customer, do a better job of servicing customer, and that gives us opportunity to charge for that. So, it's kind of a it's become more away from a region to maybe more filling in space where we have opportunity to grow.
That's great color. Thanks for the time.
Hey, Ari. I don't know how I forgot to mention our auto insurance as another pressure point on the inflation side. I mean, along with the volatility you see there, I mean, premiums have been going up anywhere from 20% to 30% or more, it seems like the last couple of years. Our renewal is not till the end of February, but got a renewal kickoff meeting in 2 weeks. So you really got to get in front of that one.
But we're doing a lot of things there to try protect us as best we can on those inflationary costs.
Okay, got it. Thanks for the follow-up.
Sure.
Thank you for the question. The next question will come from Stephanie Benjamin with Trusz. Please go ahead.
Hey, Fritz. Hey, Doug.
Hey, Doug. Hey, Doug.
I wanted to touch a little bit, in the same vein on the Northeast expansion, maybe what you've seen in terms of some of those newly opened terminals from the end of last year, anything in terms of improved productivity and profitability through the Q3? Thanks. Sure. Q3 is now over $300,000,000 closer to 3
in Q3 is now over $300,000,000 closer to $340,000,000 actually on an annualized basis. If you think about freight going in and out of the market. The growth rate there, as you might expect, has been pretty strong and definitely in the newest markets we opened last year, but also the original openings, the Harrisburgs and Phillies of the region, they've been good performers too in terms of growth. The last round of terminals we opened were a lot smaller. So we have been able to get back to breakeven quicker than we did with the original 4 or 5 that we opened back in 2017.
So in the quarter, fully allocated, the Northeast operated a little bit better than breakeven for us. So that's encouraging, but the brand continues to grow up there and be recognized and we'll open to 1 more market up there in the Q1 and we'll probably continue to put a couple of dots on the map. If the market remains if the environment remains good next year and we're not bogged down in the pandemic, we probably got the opportunity to put down a couple more dots on that next year as well.
Got it. Well, that's all I had. Thanks so much.
Thanks, Devin.
Thank you for the question. The next question will come from Jason Side with Cowen. Please go ahead.
Hey, guys. Good morning. Everyone's well. Two quick questions and I apologize if one has been asked. My phone dropped me on this call for a little bit.
One, how should we think about a general rate increase in terms of both timing and full amount as we look
forward? Yes, I mean, we generally we're not the biggest carrier in the industry, so we can't move that on our own and get customer acceptance. So we tend to follow after a couple fall in place. I know there's one out there getting ready to go on January 1 with a GRI and ours was early February last year. So I certainly think it will be within that annual kind of cadence.
The markets, the shippers out there want to secure capacity with good carriers and they've seen spikes in their truckload spend. And our conversations are more consistent annually. We try to partner with our customers and discuss the environment, the cost and their needs and we try to come at it annually. So I expect it will be similar cadence this year.
Okay, fair enough. And back to PT, when I look at it as a percent of revenue, obviously, fairly high this quarter, it takes time to change over your network to look more like an OD, right? So how should we think about PT as a percent of revenue in 2021?
It varies, Jason. I mean, this year, we didn't walk into the year expecting to spend what we spend, but conditions changed, whether it was on the driver side and the tightness in TL and intermodal availability. So that kind of drives it for us. I don't think structurally the things we're doing this quarter early next year are going to change our spend as a percent of revenue. It's a lot of times it's market driven.
I mean, if we'd had more drivers this quarter, it probably would have been lower. But if I could have got more rail capacity, that's a better cost per mile proposition, I'd use more. So it's kind of market driven. We've been in a fairly tight band over time.
Okay. So you think you'll stay within that band that you've had over time?
Jason, I think I would add, I mean, just at simplest level, we're OR driven. So, if there's an opportunity for us to utilize PT to drive our OR down or improve the OR, we're going to do that. So, one of the points we made earlier is that that's an optimization decision for us, right? So, you got to go through the dynamic of is it cheaper to use rail, is it cheaper to use PT assets versus our own in a particular market or particular opportunity. So, to the extent that we continue to make that kind of data driven decision, we're in a position we can drive the OR.
So, although it would be good to have potentially a PT target, I guess, really our prime target is really about driving OR.
No, I understand that. And with REL though, don't you have a limit on sort of how much you can use in terms of just even from a service perspective?
Sure.
Yes.
What's sort
of that limit that you think of?
There's only certain lanes where it's really helpful. I mean, when you think of our kind of transcontinental moves from the Iron Belt over the coast, whether it's the Pacific Northwest or Southern California, I mean, those are the primary places where we can really use it to our advantage. So, we're not able to use it in any kind of short haul ways to help us to any extent.
Right. Okay. Well, listen, gentlemen, I appreciate the time as always. Thanks for the color. Thanks, Jason.
Thank you.
The next question will come from Tyler Brown with Raymond James. Please go ahead.
Hey, good morning, guys.
Good morning, Tyler.
Hey, Doug, great quarter on the margin side, but I was hoping that you could help me parse out the 180 basis point improvement. So I know it's going to be tough. I'm going to ask it anyway. But is there any way that you can parse out maybe 1, how much did lapping the heightened costs from last year's terminals help? 2, how much did the lack of the 401 match help?
And then 3, how much were the PCO? And I think you paid the $2.50 July payment, I think. How much were those headwinds? Any help there?
A little help Tyler, probably not as much as you want, but I'll give you a little help. I mean, first of all, we're really pleased to say that our 401 reinstatement was for the whole quarter. So that number is in there. There was only a 1 quarter gap there. The $2.50 you mentioned, that was the 2nd quarter event.
The extra PTO days, I mean, there's the dollar impact there and we said, I think that was about $10,000,000 spread across the 3 quarters. But a bigger impact there is a lot of our employees use their PTO and that's a great thing for them, but like some of our busier weeks in July August, we had people taking extra PTO and they're on vacation and getting a break from the craziness. So there was an additional little cost there. I'm not sure what other one that we would have to call out.
Yes, that's helpful. Those are just kind
of some of the idiosyncratic things at least that I see. But maybe
just switch gears We view the quarter as kind of pretty much back to normal in terms of the puts and takes on expenses. Okay. Okay.
That's helpful. And then on the 7% renewals and maybe you guys addressed this, but specifically, how much of that was from layering in accessorials versus base tariff increases?
Tom, we didn't break that out. I would just the way we look at it is that's what we're getting from the customer in total, right. So, if we can get it on the accessorials, we're going to get it there. If it's on the base, we're going to get it there. At the end of it, we got to get paid for all we're providing to the customer.
Right, right. Okay. And my last one, so Fritz, is Memphis a key east west break?
It is.
Do you have any idea how much freight flows through there? I mean, 200 doors seems like a really big facility, kind of pushing the limits.
Let's see here. We
might be able to get back to you with that. That's not something that's Well, but here's
my big question. Well, my big question is, was the door pressure there holding up some of the connections on the East West? And does that give you an opportunity to Lincoln out the hall?
Listen, it facilitates all that. It was not a constraint for us. This was more about, hey, this is an opportunity. We've got the real estate here. Let's get in front of this, make sure we got ample power as we continue to push growth here.
So, I wouldn't say that it was an immediate constraint. This one is maybe look more over the horizon a bit here.
Okay. And that was an owned Greenfield site?
Yes. So we owned and then we're flipping we bought a parcel and built from there.
Okay. Good deal. Thanks guys.
Thank you. There are no further questions at this time. I'll turn the conference back over to our speakers for closing remarks.
Thank you everyone for calling in. We're excited about our Q3 results. I think that it really speaks to what the longer term opportunity is for Saia and we'll continue to focus on execution and look forward to the continue growing the business and driving value for our shareholders. Thank you much.
Thank you. Ladies and gentlemen, this concludes today's event. You may now disconnect your lines.