Good day, and welcome to the Saia Incorporated Hosted 4th Quarter and Full Year 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Doug Cole. Please go ahead, sir.
Thank you, Britney. Good morning, everyone. Welcome to Tsai's Q4 2019 conference call. With me for today's call are Rick O'Dell, Tsai's Chief Executive Officer and Fritz Holzgrefe, our President and Chief Operating Officer. Before we begin, you should know that during the 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 most recent SEC filings for more information on the exact risk factors that could cause actual results to differ. Now I would like to turn the call over to Rick O'Dell.
Well, good morning, and thank you for joining us. I'm pleased to report that we closed out 2019 with record full year results despite a 4th quarter that was somewhat disappointing. Our revenue in 2019 was a record $1,800,000,000 surpassing last year's record by 8%. Operating income also grew by 8% to a record $153,000,000 While 4th quarter revenue was a record $443,000,000 the quarter's results were negatively impacted by terminal opening and relocation costs as well as accident severity, which Doug will cover in more detail in a financial review. Despite the challenges to the Q4 results associated with opening 3 new terminals and relocating 3 others in the period, productivity for the full year actually improved modestly in both the dock and city operations.
Declining weight per shipment throughout the year led to a slight decline in load average, but we were able to reduce our line haul cost as a percent of revenue by 2.2% and purchased transportation miles as a percent of total line haul miles dropped to 10.3% from 10.6% last year. I'm pleased to report that both on time pickup and on time delivery metrics improved year over year despite all the terminal activity and the growth of our workforce. Our cargo claims ratio for the full year of 0.76 was slightly improved from 0.77 last year, despite again all the new terminals and all the new employees. As 2020 begins, Saia operates 168 terminals across 43 states, having opened 9 new locations in 2019. Since May of 2017, we've opened 18 new terminals across new markets in the Northeastern U.
S. Our expanded service offering has quickly resonated with our customer base and exiting the 4th quarter, we're on an annualized run rate of over $280,000,000 into and out of these new markets. With enhanced geographic service offering and our consistent quality reliability, we're raising our value proposition to customers. Our yield rose 3.7% in the 4th quarter, making our 38th consecutive year over year improvement. I'll now turn the call over to Doug for a review of key 4th quarter and full year financial highlights.
Thanks, Rick. I'll start with a review of the 4th quarter. Revenue rose 8.9% to 443,000,000 dollars Along with the yield improvement Rick mentioned, revenue also benefited from shipment and tonnage growth of 6.3% and 4.3%, respectively, in the quarter. Fuel surcharge revenue was up 2.2% year over year and was 13% of total revenue. Despite a 1.9% decline in weight per shipment, our revenue per shipment rose 1.8% to $2.38 benefiting from the yield growth and also from a 1.1% increase in our length of haul.
Operating income of $27,000,000 in the 4th quarter was down 18% year over year with much of the decline stemming from costs associated with 3 new terminal openings and 3 major terminal relocations, which occurred in the quarter, along with increased insurance reserves associated with accident severity. Additionally, on the cost front, I can offer a little bit more color on the quarter as follows. Salaries, wages and benefits rose by 10.7%, reflecting our average employee count being approximately 5% higher than the prior year, our July wage increase of approximately 3.5 percent and continued inflationary health care costs. Purchased transportation costs increased 10.1% year over year from a combination of 7.1% growth in PT miles and 10.6% growth in purchased rail miles. Our overall PT miles were up 9.8 percent of total miles compared to 9.6% of total miles in the Q4 last year.
Fuel expense fell by 0.8% in the quarter as national average diesel prices were 5% to 6% lower throughout the quarter compared to last year. Our miles per gallon across the fleet continues to improve as well and help to offset the fuel costs associated with our mileage growth of approximately 6%. Claims and insurance expense spiked by 50% in the quarter due primarily to accident severity. Our cargo claims ratio of 0.83% was also up from 0.75 percent a year ago, but improved through the quarter as continuous training efforts began to produce a benefit with our newest dock associates. Depreciation expense of $31,900,000 in the quarter was 17% higher than last year, matching the trend we saw throughout the year and reflects our investments revenue equipment, properties and technology.
The average age of our tractors is now less than 5 years. Overall, operating expenses grew by 11.3% in the quarter, outpacing our 8.9% revenue growth and 4th quarter operating ratio deteriorated to 93.8% compared to 91.8% a year ago. Our tax rate for the 4th quarter was 18.1% compared to 19.9% last year. The tax rate was positively impacted by the enactment of an alternative fuel tax credit in the 4th quarter that covered 2018 2019 reporting periods. 4th quarter diluted earnings per share were $0.81 compared to $0.97 the prior year.
The previously mentioned fuel tax credit benefited 4th quarter EPS by 0 point 0 $7 $7 Moving on to the financial highlights for our full year 2019. Revenue was a record 1.8 $1,000,000,000 and operating income of $153,000,000 was also an annual record. Our operating ratio held flat in 2019 at 91.5 percent. For the full year 2019, our diluted earnings per share were $4.30 versus $3.99 in 2018. And again, the reported 2019 EPS benefited by $0.07 as a result of the previously mentioned enactment of the alternative fuel tax credit.
At December 31, 2019, our total debt was $136,000,000 and net debt to capital was 14.3%. This compares to total debt of $123,000,000 and net debt to total capital 14.8 percent at December 31, 2018. Net capital expenditures in 2019 were $287,000,000 including equipment we acquired with capital leases. This compares to $252,000,000 of net capital expenditures in 2018. In 2020, net capital expenditures are forecast to be approximately $250,000,000 including investments in real estate, terminal infrastructure improvement projects, our fleet and continued investments in technology.
Before we open the line up for questions, I'd like to turn the call over to Fritz Holzgrefe for some closing remarks.
Thanks, Doug. While we all would certainly liked to have closed out the year with stronger operating margins, I'm pleased with the company's growth trajectory and how our company is positioned as we move into 2020. Rick mentioned the 9 new terminal openings we completed in 2019, but I'd also like to highlight some major terminal relocations that position us for long term share gains and better service across our network. In January of the past year, we moved into a new owned facility in Harrisburg, Pennsylvania, more than doubling the size of our former lease terminal in that market. The new location will service for years to come as a major break facility in Northeastern U.
S. Other major terminal upgrades occurred in Indianapolis and Phoenix where we relocated the new owned terminals in both markets, essentially doubling our door counts at both locations. In Philadelphia and Newburgh, New York, we relocated the larger terminals and we outgrown the terminals open in those markets within the last two years. Our total door count in Northeast grew by 112% in 2019. In 2020, our current plan calls for 1 new terminal opening in the Q1 and then we have a handful of relocations slated for the balance of the year.
The lion's share of our capital expenditures in 2020 will once again be directed towards our fleet. As Doug mentioned, the average age of our tractor fleet is now less than 5 years and should dip below 4 years in 2020 based on our planned purchases. Improved fuel mileage, greater reliability and a full suite of in cab safety technology that comes with new tractors are all benefits of lowering the fleet age with new buys. And finally, with respect to the current freight environment, we continue to view freight activity as somewhat muted. In fairness, January is one of the softest months seasonally in our business, so I don't want to read too much into 1 month.
Against easing comps, January shipments per day grew 8% while tonnage per day grew 7.7%. The most encouraging trend over the last couple of months is that the weight per shipment trend seems to be in a bottoming process. Weight per shipment in January was £1304 in line with what we saw in November December. We're excited about the investments to date as we feel they position us for share and margin improvement in 2020 beyond. With that said, I'd like to go ahead and open the call for questions.
Operator?
Our first question comes from Jack Atkins with Stephens Incorporated.
Good morning. Thanks very much for taking my questions.
Good morning, Jack.
So I guess just to start off, Fritz, going back to your last comment on just sort of the underlying freight market. Could you update us on what the December tonnage and shipment metrics were? And then it seems like there's been a step up in demand and in tonnage here over the last couple of months judging by December January. And just sort of curious, what do you think is driving that? Is that just purely a function of easier comps?
Or do you feel like in the last maybe 6 to 8 weeks, things have begun to maybe stabilize to improve a bit out there?
I'll take the first part of that, Jack. I'll take you guys through the shipments and tonnage growth throughout the quarter, and we'll start with October. Shipments were up 6.9% and tonnage was up 3.5%. In November, shipments were up 2.7% and tonnage up 1.4%. And then as you mentioned, December, things picked up a little bit.
Our shipments were up 10% and our tonnage was up 9%. And the December comparison was up against negative shipments and tonnage a year ago. Shipments a year ago in November October November have been positive. So the comps did get easier. In terms of the environment we're seeing, I mean, it's the same numbers you're seeing.
I mean, industrial production was down in December. I think that was the 4th out of the last 6 months where it was down. The PMI trends have been negative for 5 or 6 months now once they turn negative. So it's tough to say now any more than that because January is seasonally the weakest month of the quarter anyway. So it's kind of hard to call out any kind of difference in pace of the environment when it's our seasonally softest month.
Okay, got you. Got you. The good news is we just saw PMI above 50 here in January that just spreaded. So that's encouraging. So I guess just shifting gears to the margin front for a moment.
Could you update us on your outlook for OR improvement in 2020? I think on the Q3 call, you were saying 100 basis points to 150 basis points of improvement from a margin perspective year over year in 2020 versus 2019. Is that still the plan? And then can you help us sort of bridge to that number, whether it's productivity improvements from having a younger fleet age, and then just sort of the leverage that you expect to get all these investments? I think just helping to bridge to that number would be very helpful for folks.
Okay. I'll start and then maybe Fritz probably has some comments as well or Doug. Historically historical seasonality 4Q to 1Q would have a modest deterioration in your OR of about 20 basis points. And but kind of given our current outlook, January performance, we would expect at this point a modest improvement up to 100 basis points. And again, we don't know what the weather is going to be like the rest of the quarter.
We always have some self insurance volatility exposure, but our outlook would be in that range at this point in time. And again, there are some carryforward costs from the 3Q and 4Q terminal openings, and we're confident, I think, in our ability over time to apply top line revenue to that and get, though, our improvements that we've talked about historically as well. You want to add something else, Fred?
Yes. The only thing I would add to that, Jack, is that as we know, the fleet improvements that we've made last year and actually last several years into this year, creates a pretty big step up in depreciation year over year that we're going to have to cover. We're obviously going to have inflationary cost in all the areas that you typically would see. There's going to be some market based wage inflation, benefit cost, all that sort of thing. But with that said, we're tracking early on and we're not quite ready to give the highlights of it, but investments in technology across not only the fleet, but then also our operations and planning systems where we think we can look for ways to drive productivity improvement on our dock, city and line haul operations.
And those investments that we have made in the last several quarters that we would hope to see help drive that margin improvement in 2020 and frankly beyond. As we have moved into these Northeast markets, those are, as we know, high cost markets. And the benefits of productivity certainly will help us drive those margin improvements into the coming year.
Got you. So the plan is still 100 to 150 basis points of margin improvement in 2020?
I think that's fair, yes. I mean, it won't be linear across the quarters, right? But I mean, I think that would be our expectation. I mean, we clearly realize this is a show me year. I mean, we've made the decision, which I think is strategically correct to open some incremental terminals.
But we've made a lot of investments, and we expect to get an adequate return on it.
Okay, great. Thank you again for the time.
Thanks, Jack.
Our next question comes from Todd Fowler with KeyBanc Capital Markets.
Thanks and good morning. Doug, congratulations officially on a new role. Maybe just to start, Fritz, some comments were attributed to you in the release about the pricing environment remaining rational. I was just hoping you can maybe expand on that and if you've seen any changes in behavior in the 4th quarter from the Q3 and maybe some comments about where contract renewals are right now?
Yes. So we see 'twenty or the end of the year into next year to be kind of competitive, rational environment around pricing. I mean, everybody's got to deal with the inflationary costs. So I think people are have that backdrop. And I think that as we continue this in the marketplace, we see people being competitive, but at the same time, you see them performing rationally.
So that continues to be a good thing good part of our market and our strategy right now. Our contractual renewals in the quarter were 5.4%.
Okay. So that's pretty consistent. I think they're around 5.5% in the Q3. So I guess just to maybe put a little bit of a bow on it, it sounds like that with where we're at in the cycle, pricing behavior is kind of what you would expect, but you're still seeing those mid single digit contract renewals?
Yes, so far.
Okay, good. And then just to shift gears and talk about the expansion, it sounds like that there's going to be 1 terminal opening in 2020. Think that that brings you to about 19 in total. You previously talked about 20 to 25. Is there a change in the number of terminals that you need in the Northeast?
Or is it just the timing where you've pulled forward some of the growth into 2019? You take a breather in 2020 and then accelerates again in '21. Can you just help us think about kind of the number of terminals and where you're at from a geographic expansion standpoint?
I think the way I would characterize it, Todd, is if you go back to when we launched our Northeast plan, we talked about 20 to 25 terminals probably gives us pretty good coverage over time. And the great thing about an organic expansion is it allows us to speed up or slow down as we see the opportunities. So we saw opportunities last year, so we accelerated our pace. And the timing in Q3 and Q4 that had obviously had an impact on results. But we're looking at this as a long term sort of investment.
So the quarter to quarter nature of it is that's part of the investment profile. I think as we look longer term in the Northeast, I mean, I think that sort of 20 to 25 number is probably reasonable. But at the same time, you could as that business evolves, we may see other opportunities to provide incremental coverage in that market as the market develops for us. So I don't know that I would say that we're at the end, but I think we'll continue to be opportunistic in that market. But this year, in 2020, as we look at where we are, it's an opportunity really to generate a return on all those investments we've made to date in the market, particularly in the last 6 months of 2019.
Okay, got it. That makes sense. And maybe just the last question for me and it's kind of along those lines, but the $280,000,000 of run rate revenue in the Northeast, do care to share kind of a sense of what the margin profile on that is relative to the business? And the genesis for the question is obviously thinking about the drag that's happening and then the opportunity of where that can go as you leverage the investment that you've made. Thanks.
Yes. So I think the way I would characterize that is that in a network business, the impact of growth in the Northeast kind of touches all corners of our company. If I looked at specifically at those, the full all in OR for those that Northeast in the Q4, it was over 100, but that we also know that was an investment period. We know that over time, I think what this does is it's going to drive our overall we'll be able to drive the overall OR in that region to something more in line with the rest of the company. But at the same time, the benefits of that incremental growth will impact the balance of the company as well.
So I think that that's still intact. The value, what we can drive out of that area, that doesn't change. It's just the expenses were pretty heavy in the last half of the year.
Got it. That makes sense, especially with the halo impact on the other regions. So I'll jump back in the queue. Thanks for the time. Yes.
Our next question comes from Scott Group with Wolfe Research.
Hey, thanks. Good morning, guys.
Good morning.
Good morning. So I wanted to follow-up on the full year OR commentary. So Q1 doesn't imply flattish margins. Second quarter has got the toughest comp of the year. So the OR improvement sort of back end loaded, is that just the comps are a lot easier?
Or is there anything about costs or anything that builds throughout the year? I just want to understand the trajectory.
I think it's a combination of comps and some of our targeted cost improvements. But it's primarily kind of driven by the comps, right? The setback half of the year well, Q1 wasn't great either, but the back half of the year was margins weren't we were making some investments. We had some self insurance volatility. A combination of things I think are just are easier in the back half.
And as we've commented, we weren't particularly pleased with our Q4 performance. I mean, it was an investment quarter. But with the revenue growth that we're having, we would expect to operate better than we did and certainly do going forward as well.
Okay. And then on the can you give us any sort of either the revenue per day or yield trends to start the year? I just want to understand, is the tonnage obviously picking up, but is there any sort of offset there in terms of yield slowing or anything?
Just it's 1 month, right? But our yield trends were similar going into the first in the Q1 as we had in the Q4 from an improvement perspective. And then so you can take the tonnage we quoted and assume a similar number, you're going to get to the revenue.
Okay. And then my last question on the pickup in weight per shipment. Can you tell what, if anything, is driving that? Is there any sort of pickup in the TL rated freight? Or is it just economy?
What do you think is driving the weight per shipment higher?
So Scott, I would say that it's just kind of a broad based. There's not really a call out there for specific market or vertical or something like that. As always, we're going to be focused on driving or identifying that freight that's going to have the best characteristics and drive the incremental margin in our business that maybe there's some efforts there that are helping to drive that. But I think overall, it's pretty broad based.
But you're not making a push to try and fill up the network with some TL business
or anything?
No. Not any more than we normally take advantage of that.
All right. Thank you, guys.
Okay.
Our next question comes from Amit Mehrotra with Deutsche
Bank. Thanks, operator. Hi, everybody. Congrats, Doug, as well. Fred, just a quick follow-up.
The depreciation expense has obviously stepped up quite a bit in 2019. What's the run rate quarterly? I assume it's flat fab. I know you got one additional in 2020 in terms of a new service center opening up or terminal opening up, but any help there?
Yes. I would just say, I mean, in 2019, I guess, for the full year, I mean, depreciation was up almost 17%. And the total CapEx number is projected to come down in 2020, but with the heavy over 50% of it being on revenue equipment, I'd say depreciation in 2020 is probably likely to be up another 19% or 20% year over year.
From 19% to 20% up year over year?
Yes. Yes. So you're going to
have the lapping effect of what we added last year plus the new equipment that comes online in 2020.
Okay, interesting. Okay. That's just a lot higher than I would have expected, but maybe I did something wrong there. Okay. And then one quick question.
Amit, I don't think anything is wrong, but I mean we opened since mid September. We opened 6 new terminals and relocated 4 other ones into new facilities. So I mean a lot of investment there plus the equipment that goes in all those facilities. So like Fritz said, I
mean Yes. It just looks like
I modeled it wrong.
Yes, I just modeled it wrong. It's really my fault. And then I just want to ask a question on the decline in weight per shipment in the quarter. I just want to I know it's a little bit backward looking, but it's a little bit of an outlier, especially when you think about Northeast not being as dilutive to wafer shipment. I think you've said that before in the past.
So were there any, I guess, mix headwinds in the quarter? I know you talked about maybe November being a particularly weak month in and out of the Houston market or the old patch market. Just talk about that and what is did that revert at all or has that reverted at all as you started the year? So obviously, that was a pretty big drag, I guess, in the month of November at the very least.
No, I mean, year over year throughout the quarter, the weight per shipment, call it, declines from the prior year actually lessened, right? So October weight per shipment was down 3.2%, November weight per shipment was down 1.2% and then December weight per shipment was down less than 1%. So, I mean, year over year, the quarter actually saw things get a little stronger. And like Rick mentioned earlier, I mean, we seem to be or Fritz mentioned, we seem to be bouncing along the bottom here. I mean, November December, wafer shipment was pretty much right where it's at here in January.
Okay. Right. Yes. And then one maybe bigger picture question for me. I guess this is for Rick or Fritz.
Just given the, I guess, the margin opportunity in 2020, it's kind of I guess it's kind of a unique year in terms of your ability to realize margin improvement and structural cost absorption relative to past years. I guess what are you guys doing from, if anything, from an operational or execution oversight perspective that's different in the past? I mean, is there anything that you're doing in terms of higher operational intensity, oversight perspective that just gives you a little bit more confidence or more confidence that the opportunity that you guys see over the next 12 months is actually going to be realized? You guys doing precision schedules,
railroading or something like that?
Well, I think, Amit, we've got a couple elements that we're building momentum around that we're pretty we're excited about. I mentioned earlier that we have made investments in technology across all the major cost drivers in our operating, in our network, which we feel like over the course of the year will help us drive those sort of incremental margins. I think the there's clearly, we've invested a lot in our industrial engineering group and our operations and analytics group that relative to the past, I think we start to see some of the benefits of that into this year. I also think, quite frankly, that part of the New England or sorry, the New East Northeast benefit that we should see as we continue to execute our strategy there, we'll be able to be in a position to leverage those assets into 2020 and beyond where I think that, that will help. That will be at an accelerated pace compared to what we've dealt with in the 3rd Q4 simply as they mature.
So I think that it's a combination of technology, investment and people will help us drive those sort of incremental returns over time.
Yes. I would just comment to the
same kind of engineering and some of our operations leadership that was responsible for opening the terminals and training people and doing all those things, you don't have some of those costs. And then the focus of those of that team of people is more on executing throughout our geography as opposed to traveling to the Northeast and doing training and opening terminals.
Yes. No, that's a good point. And then just falling back one very quickly on the D and A. Does it step up from the current run rate in the first half and then kind of normalize in the back half? Is the right cadence?
Or does it just continue to step up through the course of 2020?
Yes. I'd say those are my options. It's going to trend up throughout the year a little bit.
Yes.
As we take delivery of the equipment and we've got a few real estate projects going on just opening a couple of new shops. We've got a couple of more relocations this year. So I'd say it will trend up through the year to that number.
Okay. That's helpful. Thanks everybody. Appreciate the time.
Our next question comes from David Ross with Stifel.
Good morning. I wanted to touch on insurance. It's been thorn in your side for a while off and on, and it's getting a lot of attention on the truckload side of things these days. When you look at 2020, do you have a decent renewal coming up at any point? I can't imagine these accidents are helping any potential premium increase.
How do you think about insurance costs as we move into the New Year?
Hey, David. Obviously, I mean, you mentioned it. I mean, we're in a very tight market in terms of truckers looking for insurance on the auto liability side. That's been the case for the last 2 or 3 years though. I'd say from our seat, while we did have an accident that you're referring to in Q4 that's high on the severity list, our claims experience over the last few years has been as good as any I would imagine.
I've been on the road a lot meeting with some of the prospective insurance companies and I really think after sitting in a lot of these meetings we've got a best in class kind of approach to safety in terms of the technology we put in our tractors these days. Our new buys, as Fritz mentioned, they come in loaded with the full suite of everything from forward and inward facing cameras blind spot detection. This year for the first time, we'll be buying tractors that have what they call level 2 autonomy. So nobody is doing more on that front, I don't think than we are. So our renewal, we're a March 1 renewal.
The process is well underway. We'll continue to hold our deductible or retention at $2,000,000 I don't see that changing. But building out the tower is inflationary. But again, I think we're better positioned than most and we look for a successful renew it although with some inflation as you get up into the tower.
So if you have better accident experience in terms of frequency and severity this year, even with the insurance increase, you think you could hold insurance and claims expense flat year over year?
No, it
will be going up. I mean, we had a we didn't have an abnormal year in terms of severity. I mean, the good thing for us though is down in the lower part of the tower, we're in a structured program, so we've got some rate consistency in the most expensive part of the tower. So the inflation we're seeing is higher up the tower where there's less premium dollars at risk.
Excellent. And then just turning back to the business for Rick and Fritz. You talked about expanding, I guess, the Indian Phoenix facilities. As you look across the rest of your business outside of the Northeast expansion, which has consumed a lot of time, what is the growth looking like there? Where are you seeing opportunities?
What parts of the country are stronger, weaker? How do you think about the rest of the portfolio?
Yes. So David, what we typically try to do is we monitor pretty closely our sort of operational door pressure, where we might need either expand our footprint or replace our footprint. So that's kind of an ongoing process. We also have pointed out over time that in key markets, we probably don't have the appropriate level of coverage. So Atlanta would be an example.
We have one terminal in Atlanta. It's on the south side. We'll add a terminal on the north side. It's not going to be a 2020 opening. And most likely, we'll add it.
It'll start into 2021 most likely. We'll be replacing our Memphis facility this year and that's kind of a normal course. We see an opportunity to expand that footprint, drive some efficiency, particularly around the brake operation there. So ongoing, I mean, we the Northeast, if you look at size growth, certainly that's something to highlight. But we also think that if you look at our legacy geography, there are areas in which we can add incremental capacity in the market and we can better service our customers and it's kind of throughout the geography.
Excellent. Thank you.
Our next question comes from Jason Seidl with Cowen and Company.
Thanks, operator. Good morning, everybody. Wanted to circle back to your January trends. Obviously, pretty good numbers. You mentioned they were up against easier comps.
Could you remind us how the comps are looking versus 2019 for both tonnage and shipments, please?
Sure. So to walk through the quarter, I mean shipments in the Q1 last year were just about flat down 0.1 percent and tonnage on the weight per shipment declines was down 3.5% in the first quarter. And moving into Q2,
yes. Doug, on a monthly basis though?
Okay. January shipments a year ago were down 0.1%. February shipments were down 1.5% and March shipments were up 1.5%. And if we're talking about tonnage, tonnage was down 2.9% last January, down 3.2% in February and down 4.4% in March.
Okay. That gives us that gives me a good sense of what to expect. As I look at the model here, obviously, your tax rates moved around. You had some good news at the end of the year in both 2019 2020 for some tax credits. What should we be modeling for 2020 beyond?
Yes. I mean, I think we'll walk into 2020 kind of expecting what we did in 2019. I think we're using about a 23.5% rate this year. Last year with the fuel tax credit the full year ended up coming in at 22.5%. But I think it's right to model at 23.5% for
the full year.
Okay. For the full year. Okay, that's what I had already. Also a little bit more conceptually looking at sort of the bigger picture, obviously your expansion has been going very well into the Northeast, big credit to you guys on that. But it has been a drag on the earnings.
Is it right to sort of look at that and as we assume it to continue to grow at above normal market paces that you're going to get a swing in earnings potentially of upwards to $1 a share from the money that you lost, the money that you could get out of the Northeast?
I'm not sure of all your the EPS math there, but I mean, you'll remember beginning in 2Q, we had just gotten to a little bit better than breakeven in the Northeast and then we went and laid in a bunch of new terminals in the second half. So I'm not sure the starting point that you're using to build up the potential accretion, but we certainly made all these investments with a long term horizon in mind. We were trying to optimize 2019 or the first half of 2020 earnings, we wouldn't have opened 6 terminals since the middle of last September. But maybe offline, we can go through the cadence a little bit or I'm not sure if that answers.
Sure. Yes. No, I was just assuming a modest loss on the $280,000,000 and then sort of get growing that a little bit in the out years and then coming to an OR more in line of what you're looking for, for the whole company and then looking at differential. But we can go offline, we don't need to do that. I appreciate the time
as I was, guys. I would just add there, Jason, what we do know about the Northeast is we don't see an impediment that couldn't get to the OR trend that you see for the entire the balance of the business, right? So that we think that continues to be a great opportunity for us. So if we get our representative share in that market, then I think you put that OR on it, I think it's pretty interesting for us.
Yes. I would agree. Gentlemen, thank you very much.
Thank you.
Our next question comes from Stephanie Benjamin with SunTrust.
Hi, good morning. Thanks for the question.
Hi, Stephanie.
Good morning. I want to talk a little bit on the pricing side. Maybe you can talk a little bit about what you've been doing internally just from not only data analytics side, but also pricing to really continue to focus on that. So just through conversations that you're having go forward, you can continue to see nice yields and just improvement. So any kind of color there that we can kind of we can receive would be helpful.
Thanks.
Sure. Thanks, Stephanie. I mean, our cadence or our drive in this area is really about continuing to refine our analytics around understanding what the cost drivers in the business are, what the inflation is related to that, what the as we expand the company, our line haul network evolves into being a, in time, a 48 state line haul network, we got to understand exactly how those what the cost drivers are in that network. And if you do that, then you've got an opportunity to really effectively price to get the returns that we'd like to get, identifying that it's a further refinement of what we always do, which is identifying that freight within a customer's book of business that makes sense to our network. And as we continue to refine and drive our analytics, we have the opportunity to balance that as we evolve our cost structure around being a national carrier, and then we price accordingly.
And quite frankly, as our quality has continued to evolve, improve over time, both on time and our claims ratio being very, very competitive, that gives us the opportunity to continue to drive those pricing decisions. That national footprint also allows us to be in a position where we can bid on more freight or have the opportunity to pursue more of it. We're not leveraged out because we don't have the service the customer might want. So it's a combination of all those things. And I know those are things that we've highlighted over time, but quite frankly, in this at this stage, it's really about continuing to drive those sort of incremental analytics to get that find that freight that works best in our network.
And I guess just a follow-up on that and specifically focusing on the analytics. Was that something that has been more of a recent initiative or a big step up in the last year in 2019? Or how could we frame maybe what innings we're at in terms of that and really start to see some return? Thanks.
Yes. I think it's been an ongoing process for us over several years. I think one of the things that I highlighted earlier, which I think is pretty exciting, is that as we've invested in technology around our cost, if you will, our operational cost around better planning and dock operation and line haul planning, those are opportunities for us to better grasp what the cost drivers are and optimize that cost so we can be pricing most competitively and with the best margin. So I think as we continue to enhance those sort of data analytics over time, that gives us the opportunity to drive margins.
Great. Well, thanks again for the time.
Thank you.
Our next question comes from Tyler Brown with Raymond James.
Hey, good morning guys.
Hey Tyler.
Hey Rick, I think you mentioned your dock and P and D productivity was up in 2019. Can you quantify that? And just to be clear, are you speaking to the entire network? Or is that just the legacy piece?
No. The entire network was up year over year just modestly. It's in the 1% to 2% range.
Okay. If you were to parse out, say, those 18 northeastern facilities, how far behind are they in terms of labor productivity? Where you would maybe want them to get steady state?
It's more than 10% below the company average. Oh, yes.
Okay. Okay. So lots of opportunity there. So maybe kind of putting that together, maybe for Doug or Fritz, but I think you mentioned Q4 headcount was up, say, 5% in here in Q4. But as you saturate those facilities, you roll technology in.
And I know it's going to be a bit volume dependent, but do you feel that there's latent labor capacity across the network? Do you think you can grow headcount at a lower rate than, say, shipments?
Yes, I would think so, particularly in the Northeast, right? So in those markets, in many cases, we're staffed to provide service rather than be most productive, if that makes sense, right? Our P and D operations aren't at capacity. So I think that there is as we grow into that market, particularly the newest terminals, there's a real opportunity there for us to drive some incremental improvements. I mean, if you think about in total, we've mentioned that the Northeast is a fully allocated OR.
That's a drag. And if you just compare that to the rest of the company for a full year, you'd say there's an opportunity to really drive some productivity there around those operations.
And I
would I mean it's
not just in the city and the dock because we're running line haul schedules with partials for service too. And as you build density, then you run your partials are a smaller percentage of the whole.
Okay. Okay. That makes sense. But do you feel that even in the legacy piece that there's still, call it, that latent labor opportunity as well?
Yes.
Call it, dock, all three aspects, I guess?
I would agree, yes. Correct.
Okay. Okay. Thank you, guys.
Sure.
That will conclude our question and answer session. I will now turn the conference back over to Mr. Doug Cole for closing remarks.
Well, thank you, everybody, for joining us on the call. And we'll get through winter and into the stronger months of the year. We look forward to chatting again after Q1. Thank you.
This concludes today's call. Thank you
for your participation. You may now disconnect.