Good day. Welcome to the Saia third quarter 2019 earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Douglas Col, Saia's Treasurer. Please go ahead, sir.
Thanks. Good morning, and welcome to Saia's third quarter 2019 conference call. Before we begin our prepared remarks, I'd like to make a few comments with regard to forward-looking statements. This conference call may contain 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. Please refer to today's press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ. With that said, I will now turn the conference call over to the company's Chief Executive Officer, Rick O'Dell.
Thank you, Doug. Joining me on the call today are Fritz Holzgrefe, our President and Chief Operating Officer, and Rob Chambers, our Chief Financial Officer. Third quarter results include record revenue for any quarter of $469 million, record third quarter operating income of $45.4 million, and record third quarter operating ratio of 90.3%, which was also tied for the second lowest OR we've had in any quarter, and record third quarter earnings per share of $1.25. The fact that these record results were achieved in a quarter in which we opened three terminals and relocated another, all in the last month of the quarter, is a result of the efforts of the entire Saia team. shipments per workday grew 7.3% in the quarter. We continue to see a year-over-year decline in weight per shipment and tonnage per workday was up 3% in the quarter.
Weight per shipment challenges financial results because you lose a piece of revenue on every shipment, and costs don't necessarily come out at the same rate. The softening manufacturing environment reflected in recent surveys indicates that weight per shipment may be a continuing challenge. That being the case, we're encouraged with our continued success on the yield front and our 5.3% improvement in revenue per hundredweight this quarter was our 37th consecutive quarter of year-over-year yield improvement. Our industry has unique cost challenges on the labor front and on the auto liability insurance front. We must continue our yield improvement to meet these and other inflationary cost items.
Our 90.3 operating ratio in the quarter was achieved despite the unexpected spike we saw in self-insured healthcare costs in the second half of the quarter and the continued decline in weight per shipment, both contributing to the negative variance from prior expectations. Rob will cover those impacts in a little more detail in his prepared remarks. Before I turn it over to Rob for a discussion of financial results, I would like to say how pleased I am with the pace and execution of our expansion into the Northeast. Since May of 2017, we've opened 18 terminals in new markets and are providing a seamless service offering to both existing and new customers. These new markets provide a long-term growth opportunity for Saia in the form of share gains and greater geographic coverage, enhances our value proposition with all customers, and obviously is supporting our above-market growth rate.
I'm now going to turn over the call to Rob for a closer look at the third quarter.
Thanks, Rick. As Rick mentioned at the outset of the call, third quarter revenue grew by 10.2% to a record $468.9 million, a combination of the effects of positive shipments, tonnage, and yield. Fuel surcharge revenue rose 2% year-over-year. Saia's operating ratio improved by 60 basis points year-over-year to 90.3, and operating income grew 17.2% to a record $45.4 million. A few of the key expense items which impacted the quarter are as follows. Salaries, wages, and benefits rose 11.4% to $250.2 million in the third quarter, reflecting an approximate 7.5% increase in the size of our workforce versus the prior year. Also, we implemented a wage increase in July, which averaged approximately 3.5% across the company. Within this expense item, healthcare costs rose 25% year-over-year.
I'd like to point out that the unfavorable self-insured healthcare costs in the second half of the quarter, in particular, resulted in an approximate $1.2 million negative expense variance from our prior expectations. Fuel expense in the third quarter fell by 4.7% from last year's level. National average diesel prices were down nearly 7% from the average price paid in the third quarter last year, somewhat offsetting the increased fuel cost associated with the 5.2% increase in line haul miles year-over-year. Purchased transportation expense rose by 14.8% to $35.8 million, and was 7.6% of revenue versus 7.3% last year. This increase was a result of purchased transportation miles, which grew by 12.7%. In the third quarter, we used a higher percentage of purchased truck miles this year versus lower cost rail miles as a result of optimizing the PT usage over imbalanced segments.
Claims and insurance expense in the third quarter compares favorably to last year, down 21.4%, primarily benefiting from more moderate accident severity across the period. Depreciation and amortization expense rose 17.4% to $31.3 million, compared to $26.7 million in the prior year quarter. The increase reflects our continued investment in properties and equipment. Our effective tax rate was 24.2% in the third quarter of 2019, compared to 24.7% in the third quarter of 2018. Third quarter net income rose 16.9% to $33 million from $28.2 million last year. At September thirtieth, 2019, total debt was $165.3 million, inclusive of cash on hand. Net debt to total capital was 17.3%.
This compares to total debt of $121.3 million and net debt to total capital of 15.3% September 30, 2018. Net capital expenditures in the year-to-date period through September were $250.7 million, including equipment acquired with capital leases. This compares to $182.5 million of net capital expenditures through the first nine months of 2018. For the full year 2019, we expect net capital expenditures will total approximately $275 million-$300 million. Now, I'd like to turn the call over to Fritz for some closing comments.
Thanks, Rob. Before we open the things up for questions, I'd like to take a minute to summarize the year-to-date accomplishments here at Saia. Of the 18 terminals that Rick mentioned have been opened in new markets in the Northeast over the past two and a half years, eight of those have opened this year. Outside of the Northeast, we were able to open a new terminal in Long Beach, California. This terminal is our fourth in the L.A. basin and 14th in the state. This opening highlights our multi-year opportunity to locate new terminals in our legacy geography. Every time we open a new terminal in the existing market, we have the opportunity to improve service standards for existing customers, and we also get closer to potential customers.
Along with all the new terminals opened this year, we've also relocated three existing terminals, including major break facilities in Harrisburg, Pennsylvania and Indianapolis. We also relocated our Philadelphia terminal, first opened in 2017, which we had quickly outgrown. But before the end of the year, we will relocate two more existing terminals in the new facilities in Phoenix and Newburgh, New York. Our strong financial performance and resulting cash flows are allowing us to fund much of this growth internally. While investing nearly a quarter of a billion dollars this year, our long-term debt is up by less than $45 million this year. Now, just a couple of brief comments in the current environment before we open it up for questions. While shipments per workday remain positive, the negative weight per shipment is an ongoing challenge.
Lower weight per shipment has a negative impact on revenue per shipment, yet a lot of the same costs remain for moving that shipment across the network to final destination. Month-to-date in October, shipments per workday are up 7.2%, weight per shipment is down 3.3%, and tonnage per workday is up 3.7%. With these comments, we're now ready to answer your questions. Operator?
Thank you very much. Ladies and gentlemen, at this time, we would like to open the floor for questions. If you would like to ask a question, please press star one on your telephone keypad now. Again, that is star one on your telephone keypad to ask a question. We will pause for just a moment while we wait for the questions to queue. Our first question will come from Todd Fowler, KeyBanc Capital Markets.
Maybe just to start with a few on the cost side. Rick or Rob, I don't know who this would really be for, but can you give a couple of thoughts on the terminal openings late in the quarter, what sort of impact that might have had on the OR this quarter, and then how you think about the OR progression into the fourth quarter given the terminal openings that you're expecting as well as the relocations?
He's asking about 3Q. For clarity, you're looking for the third quarter impact?
Yeah, Rob. I was hoping that you could talk about maybe what the impact was on the third quarter, and then if you have any thoughts on how we should think about the potential impact sequentially into the fourth quarter.
Yeah, I think in the.
It's a double question for you.
No problem. I appreciate it, Todd. In the third quarter, the way we would be thinking about that is that it impacted our results by about 30 basis points. For us, opening those terminals in the kind of back half of the third quarter or end of the third quarter, we ended up incurring the hiring cost, the training cost, and others that all impact the productivity and other things. As we go into Q4, the way we're thinking about it is it's likely going to impact our results in the $3 million range.
The $3 million would be if we thought about normal sequential progression, fourth quarter versus third quarter, and then maybe add another $3 million of costs on top of that. Is that the right way to think about the OR progression?
The deterioration historically is about 100 basis points.
I think if you look at with the meaningful investments in the terminal openings in the Northeast, plus relocations for incremental capacity, the fourth quarter is going to clearly have an operating expense impact. It's an investment quarter for us to support our targeted market share gains in 2020 and beyond. We currently expect the fourth quarter OR to deteriorate approximately 230 basis points from third quarter.
Got it.
The biggest portion of that is probably the Northeast, but we're also impacted by some of these other relocations that we have for capacity. Obviously, if you look at benchmark performers that we've looked at, one of their key strategies has been to invest ahead of their growth. So we've been kind of executing that, and then we also obviously accelerated our expansion in the Northeast due to our success plus the market opportunities. There's probably some higher operating costs maybe than we even would have anticipated, because a lot of the terminals only came available to us as leased facilities. It's more on the operating expense line up front.
Todd, I would add to that. The terminals that we opened in the Northeast, Erie, Buffalo, and Albany, were in the last two weeks of the quarter. Those are new openings, essentially there's no real productivity gain. They start out, essentially, for all practical purposes, are open for business for the first time in the fourth quarter, which is seasonally, as you know, kind of a challenging quarter as it is. We've got two more openings there. The inefficiency, if you will, of the new terminals, that has an impact. We look at it into next year. The great thing with this is that we can get these incremental facilities in place this quarter, next spring is the seasonally we change. We're well-positioned to optimize and take advantage of those new assets.
All that's helpful. Fritz, to that point, maybe just I'll skip over a couple of other ones I had. Thinking about 2020 and the investment that you made this year into 2019, and to Rick's comment about pulling some of that investment forward. What sort of framework can you give us for your kind of general expectations, not from a guidance standpoint, but maybe how we could think about margin progression into 2020, given the investment this year and just maybe assuming kind of the economy holds steady but doesn't have any sort of significant acceleration or deceleration?
I guess I would just comment that we fully expect improved incremental margins and OR improvements in 2020, in spite of our anticipation of a stable but fairly soft volume environment. For the year, our current kind of targeted expectations would probably be somewhere in the 100 to 150 basis points and mostly dependent upon the external environment.
Okay. Maybe just the last one I'll ask. There's been a couple of comments about the weight per shipment. It looks like it was stable sequentially, but do you just have any general thoughts on what's going on with weight per shipment? Is that a macro function? Is there something specific with the mix? Just kind of maybe your thoughts on how the environment feels right now from a volume perspective going into the fourth quarter. Thanks.
Yeah. I think if you look at it across the board, a couple competitors have announced already. I think it's a theme anyway, right? The industrial economy is softening, and that tends to be a higher weight per shipment. I'm not sure how, from a mix standpoint, our Northeast expansion would play into that, obviously, energy sector's soft. That tends to be a higher weight per shipment. Our kind of base planning assumption is that it's kind of stable from here going forward. We're not anticipating, from a modeling and a cost standpoint, it deteriorating, we're not anticipating a rebound. That's, I guess from our perspective, it's a risk on the downside, it's potentially kind of an opportunity, right, on the upside should things kind of improve.
Okay. Makes sense. I'll turn it over to somebody else. Thanks for the time.
Thank you. Our next question will come from Scott Group, Wolfe Research.
Hey, thanks. Morning, guys. You're talking about sort of two headwinds to margins. One is sort of the terminal cost, and the other maybe is now just weight per shipment continuing to be a headwind longer than you thought. Maybe the terminal costs maybe are somewhat temporary, but if we don't see a rebound in weight per shipment, is what we're hearing that sort of a sub 90 OR is now tougher to get to for next year? Is that sort of the message we should be taking away?
Yeah. No, I wouldn't disagree with that, right? It clearly has some margin impact on us. That being said, we would anticipate that our volumes would be above the market. Even if you look at where we ended up for the third quarter, our kind of legacy volumes were flattish from a tonnage standpoint, but the volumes to and from the Northeast were up 83% year-over-year. Supported by some maturity of the terminals that were opened two and a half years ago, plus all the terminals we've opened this year. We would anticipate that we would continue to have above market tonnage due to our share gains. We're seeing that not only in the Northeast but still in our legacy networks, right? Because flat's pretty good compared to some of the negative tonnage we've seen from some others.
Right. Do you think we're seeing the full benefit of whatever you guys opened in September? Do you think we're seeing the full benefit of that in the October plus 3.7 on tonnage you just gave us?
No. The way you think about those, Scott, one of them opened on the 30th. Albany opened on the 30th. It's so early, it does not have an impact. Immaterial, if it is.
Yeah. It continues to be a headwind, right? When you look at all of the investments that we've made in the terminal openings. Again, once that gets into your run rate, and then we apply revenue to the new facilities, and over time, the productivity improves materially as well.
No, I understand.
Year-over-year in the terminals that have been open more than a year, production is up about 20% because you're running routes for coverage. As you apply density to those, there's not much incremental cost.
Right. Are you seeing much of an impact from GM?
We don't play in the auto industry much at all.
Okay.
Some secondary parts. That's about it.
Okay. Just on the rev per shipment, up 1%, that's a pretty meaningful deceleration from where we've been. I get the impact of weight per shipment. We've been dealing with that earlier in the year as well. Is this a sign that pricing is slowing? Are we going after tonnage and giving up a little bit of price or mix? How should we think about this decel in rev per shipment?
Well, I'd tell you this, right? If you look at it, our contract renewals have decelerated a fair amount, right? Even if you look at it historically, when we were getting bigger contract renewals, even though the weight per shipment was coming down, there was a partial offset due to our yield efforts, right? As your contract renewal rates come down a little bit, you actually have a higher impact from your impact on your weight per shipment.
Did you give us the contract renewals? I missed it if you did.
We did. The third quarter was 5.5%.
Yes. Let's give it to you through the year, though, right?
Yeah. If you look at Q1 9.8%, 6.7%, and then 5.5% in the quarters to date.
Okay. All right. Thank you for the time, guys.
Just general comment. The yield environment, I think is rational, particularly considering the volume environment, right? It's not high single digits anymore, right?
No, I get it. I see that. Okay. Thank you, guys.
Sure.
Thanks, Scott.
Thank you. Our next question will come from Amit Mehrotra, Deutsche Bank.
Thanks, operator. Hi guys, thanks for taking the question. Rick, I just wanted to circle back if I could, on the 100 to 200 basis point improvement comment in 2020 with respect to the OR. I know, maybe that's more concept.
Just I said.
What's that?
I said 100 to 150.
Okay. Well, that makes my question.
I think we've even said before, 150-200, That was in a different volume environment, right? Yield environment.
Yeah.
I think as you know, we've kind of stepped ours down, more reflective of the external environment. Go ahead, I'm sorry.
Yeah. No, that's fine. I guess the 100 to 150 kind of makes the question maybe more relevant because historically you've talked about that, I think more conceptually in terms of just how the revenue and cost levers work in the business and the industry, and it's not necessarily guidance. Correct me if I'm wrong. Why shouldn't it be much better than that in 2020 given the cost you had in the third quarter, the greater than seasonal deterioration in the fourth quarter? There's just a lot of unabsorbed cost this year for explainable and right reasons that this should make the year-over-year kind of OR progression next year better, I would think, than that 100-150 basis points framework that you've talked about.
If you could just talk about that in terms of how should we think about that? Is there ability to do much better than that because that's really just a conceptual way to think about the business, or is that really how you see things shaping out for 2020?
Within our comments on that, first of all, it's not guidance, right? It's an indication of what we see as an opportunity. I think the comments on that is obviously we've made some material investments this year. We're going to have some depreciation headwinds that are kind of fixed costs that are going to come into those numbers. Then we're anticipating a somewhat soft volume environment. Then I think it just depends on what the yield opportunities look like, which we would still anticipate us being able to get above average yields. I can't tell you necessarily what the market's going to be like.
I would just add on the cost side, underlying costs in this business remain inflationary. The macro backdrop that Rick just described, you flip that over to the cost side, that doesn't let up next year. I think the combination of those things kind of get to the numbers that we're talking about.
That being said, we feel like we have good synergy opportunities to apply density to our current run rates and have good solid incremental margins over a period of time. Fritz may make a couple comments, but we continue to make some investments in technology and see some opportunities for synergies there to manage our business better.
Yeah. It's pretty critical, right? In this business, we generate an enormous amount of data. The opportunity for us to capture that data and then monetize it, either through how we schedule our network or how we dispatch our network and terminals, how we schedule our labor, those are all things that we're investing in that we see will help offset some of those inflationary costs that I described. We're making some pretty substantial investments in sort of network optimization software, better decision making, things that make the tools for our drivers, everything from handhelds to all of those things drive productivity and efficiency. I think there's opportunities for us to kind of offset some of that.
Right. Just related to that also, one of the things that you've talked about, Fritz, in the past, and Rick even talked about kind of the overall network density effect that the Northeast expansion gives you, and I kind of think about your network moving from east to west, and there's some density, and you've talked about kind of the density benefits there. Maybe, Fritz, just help us think about what the further opportunity there is, like when you think about some of the best in class OR regions, how much more is there to go there? Is the uplift in the total OR of the company going to come predominantly from Northeast now, or are you going to see some of the other regions, there's just a lot more further room to build further density and get the OR even more?
I think the network effect benefits will continue, right? If you look at the best in class operators that are out there, they are benefiting from having 48 state coverage. They can reach their customers. They can leverage all elements of their network. If we look at internally, the regions that were right directly contiguous to the Northeast for us, we've seen their operating performance improve over time simply because we're leveraging those locations. That's not to say that some of our best operating regions in the country, in the center of the country, can't get better from where they are now, simply because you're leveraging that to help support Northeast growth. I'd call your attention to, we've highlighted some additional legacy terminals that we've added. Long Beach, we mentioned that. Relocated Indy, and then Phoenix later this year.
Those are all ones that create greater efficiencies and better opportunity for us to service our customers. As we scale this business to 48 states, you'll see us be able to better service customers. The related effect of that is that we actually leverage the assets as well.
Right. Just last question from me, if I could. I just want to understand how the customer perception of the service is evolving as you guys grow volume. OD talked about earlier this week, they use Mastio to kind of do deep survey work and showing their quality perception is actually widening relative to competitors. I'm just kind of interested in how you look at that and how the customer is perceiving your service and how your service is as you guys grow volume and grow shipment pretty significantly.
Well, we see that the Mastio data, we saw improvements in our scores as well. We're pleased with that. I would add that I think we would point to a lot of our success or growth that we've seen is directly related to what customers are experiencing when they do business with Saia. If you look, we mentioned earlier our growth, we're flattish sort of in our legacy markets, and the growth in the Northeast has been significant, but that's driven by customer acceptance. Customers understand what they get from us. They understand the quality of service, and I think that is ultimately the real measure of what a customer thinks.
Right. Okay. Thanks a lot, guys, for taking my questions. Appreciate it.
Thank you. Our next question will come from Stephanie Benjamin, SunTrust.
Hi. Good morning.
Morning, Stephanie.
Morning.
I just wanted to touch back on the terminal expansion plans. Maybe you can provide us an update on where you stand in terms of additional terminals looking to open in the Northeast, and I think there was a bit of an acceleration of opening this year. What that means in terms of new terminals to open in 2020, not only in the Northeast, but also kind of maybe you can provide us also an update on how you view expanding your locations in existing markets as well. Thanks.
What I'd point to is that from our original launch of the Northeast, we have done this organically. The idea was that we could accelerate opportunistically or slow down if we saw a change in the environment or, in the case of this year, we saw an opportunity to take advantage of available real estate and move a little bit more quickly than we originally planned. We did that. I think as you look into next year, specifically in the Northeast, there's probably one, maybe two on the pipeline. There's really a focus now on optimizing the five in the Northeast that we've added here from the middle of September to the end of October. That'll be kind of our focus into the next year. That's not to say that if there's something opportunistically that came up, we wouldn't take advantage of that.
That's kind of our plan right now. In the legacy markets, typically what we've seen, they tend to be more opportunistic where somebody may exit a facility, and that gives us an opportunity to pursue one. We've got some pretty big investments in expanding some existing terminals that we have or relocating terminals next year as well. That would be facilities that we currently have that we're just improving our operation and building. Memphis is probably the biggest one. That's a significant opportunity for us.
Great. That's really helpful. Just more of a housekeeping item. Is there a chance you could walk through the sequential shipment and tonnage trends during the quarter? That's it for me. Thank you.
Sure. No problem, Stephanie. If we go back and we start in July, shipments were up 4.9%, and tonnage was up 1.6%. In August, shipments were up 8.6%, tonnage up 3.6%. In September, shipments were up 8.6%, and tonnage was up 3.9%. Again, for the full quarter, shipments up 7.3%, tonnage up 3%.
Thank you.
Great. Thanks so much.
Our next question will come from Jason Seidl, Cowen and Company.
Thank you, operator. Hey, gentlemen. Good morning.
Good morning.
I wanted to just circle back to your weight per shipment. We spent a lot of time talking about it. However, it's down about the same as it was in two Q, and actually sequentially ticked up a bit. Were you expecting it to improve? Is that why we have a little bit more focus on this call, or is there something else you're seeing in the numbers?
It actually has deteriorated a little bit through the quarter, right? In July, we were at $1,321.
I can't read these.
Yeah, 1321, then we dropped down to 1289.
Yep.
Yeah.
1289, and now it's 1283.
Yeah. It kind of deteriorated through the quarter.
Got you. Okay.
That's a bit more of a headwind than we would have anticipated when we were looking at July, right?
No. Okay. Fair enough. Do you see it continuing to deteriorate as we move throughout the fourth quarter?
Not necessarily. We tend to model it flat, but it's kind of an odd phenomenon in that 30 to 40 pounds, it's even hard to kind of ascertain exactly where it came from or how it happened, and it doesn't sound like very much, but when you look at the revenue per shipment, it has a pretty big impact, right? Basically, it's the same cost to move something, whether it weighs 30 or 40 pounds more. It just happens to be how we get paid.
Right. Fair enough. That's good color on that. I want to switch back to your contractual renewals. Now, obviously, they've stepped down, but those prior high single-digit numbers are, I think you even acknowledged in another call, weren't really sustainable. Were you expecting that step down to that contractual increase in the quarter? Because even the numbers that you gave us, they're still pretty good contractual rate increases.
Yeah. I don't disagree with that. I would just say that, if you just look at it compared to how we've been performing over the last even several quarters, we were seeing higher contract renewals that was giving us a partial offset to our weight per shipment decline. It's providing a little bit less cover there.
Let me ask it a different way. I guess in terms of what you were able to achieve in the quarter, and knowing what you knew before that 9% to 10% rate increases aren't sustainable, is the number that you got about what you thought you were going to get in terms of the rate increase for three Q?
Yeah.
Yeah.
That's fair enough. Also, Fritz, probably a little bit of a nitpicky one, but I want to make sure I understand this. You mentioned there was a $1.2 million more in healthcare costs at the end of the quarter. Is that something that's one time in nature that we shouldn't expect to reoccur in 4Q?
Yeah. The way I would think about that, we saw just the expense run rate and healthcare cost increase through the quarter. That tends to be a little bit volatile up and down. Probably we know that underlying healthcare costs are inflationary. That's kind of the cost of doing business for us. It was an impact for us in the quarter. We try to plan for higher costs. It just was higher than we expected.
Since we're self-insured, it's somewhat volatile, particularly for the more expensive claims. We can't really quantify the impact of this, but we are doing some wellness initiatives that may have had some impact on near-term visits that you'd anticipate may pay dividends over time, but should obviously, right? That's the only way I think you can combat the inflation that we're seeing in healthcare, and we're probably making some investments to do that, but until we see that paying back over time in a self-insured environment. All the stats will tell you you should do that, so we're doing it, but I'm not necessarily signing up that this was a one-time thing, because we've seen this volatility before.
Yeah. Its underlying costs are going up. We know that. It goes to the earlier comment, our underlying inflationary business.
Okay. Rick, Fritz team, appreciate the time as always.
Thanks.
Thank you.
Thank you. Our next question will come from Jack Atkins, Stephens Inc.
Good morning, guys. Thanks very much for taking my questions. I guess just to start off with kind of a bigger picture question, when we think about technology and the role that's playing within the transportation sector more broadly, it seems like there are a lot of opportunities to use technologies today versus, 12-36 months ago in an effort to sort of drive out costs. Your point on inflationary costs are well taken. Are there some opportunities for maybe some technology investments that you guys can sort of realize over the next 12-24 months to maybe find ways to drive down expenses, whether it's line haul costs or other expenses, in an effort to sort of keep your cost per shipment in check?
Yeah. Thanks for the question, Jack. We actually have projects in just about every area. The operation focused on driving productivity and efficiency, starting with our line haul network optimization plans, figuring out ways to better schedule as we've moved from being a 34-state operator to a 48-state operator. Line haul's got to change to support that. We also have to be in a position where we can better schedule that because you think about the labor costs, the equipment costs that go into that. We've invested pretty heavily in those projects. We're starting to see early benefits from that, we would expect that to be a big focus in next year. We also have implemented this year new dispatch technology in our terminal operations that better allow our folks to schedule and deploy our P&D assets.
This business generates a tremendous amount of data as you know, as you point out. The better we can capture that data and to make a decision with it more quickly, we have the opportunity to defray or offset some of those inflationary costs. At the same time, we better service our customers. That's a big focus for us into 2020.
Yeah. One other just brief comment on the line haul side is, we do have a specific project there to re-optimize our network in a more longer haul nationwide coverage. We would expect to ascertain some benefits from that. One thing I would tell you is just, it's the same people that obviously do the line haul planning for the terminal expansions that would also be doing our constant optimization over our current tonnage flows. Actually, quite frankly, our slowing of the expansion should allow us to reallocate resources at optimization that are currently basically spent on expansion, right?
Okay. That makes sense. Rick, I guess as you think about that 100 to 150 basis point goal post for next year in terms of thinking about OR improvement, does that really include much of a benefit from those productivity items that you just outlined, or is that something that could be a net good guy next year relative to those margin numbers you were talking about earlier?
Could be. I don't disagree with you that it could be, but I think there's a fair amount of uncertainty about what the underlying volume and yield environment looks like in the industry. Do those two things offset each other? If they both come together, obviously there's upside.
Okay. No, that definitely makes sense. Just, I guess, a follow-up question around the network expansion strategy, and I just want to look at it from a little bit different way. Instead of thinking about the number of terminals that you've added this year or relocated, can we think about the number of terminal doors that you've added and what's the growth rate there this year? Maybe expectation for year-end 2019 versus year-end 2018. Just trying to get a sense for the capacity that's been added to this network. More broadly, how do you think about capacity utilization within your network today relative to what it could be as we play this thing out over the next 12 months?
Okay. Just to give you a perspective of the capacity enhancements we made in the Northeast alone. In 2017, we had 296 doors at 12/31. 12/31/2018, we had 457 doors. Obviously on a low base, that's a 54% increase. As we commented on the acceleration that we've had, and quite frankly, we've exceeded our own expectations in terms of share gains up there. At the end of this year, we're going to be at 970 doors. It's a 112% increase over 12/31/2018.
Okay. That's great. Within the broader network, though, I know you've been, to your point, relocating terminals. Have you been expanding your door count outside of the Northeast? Just curious sort of where things stand on a consolidated basis.
We clearly have been, if you look at that on flattish type of tonnage, right, we've expanded our excess capacity. Again, that's a strategy that has paid off for others as they've gone through organic expansion, because as you build the densities out, right, you're not having capacity constraints, which by definition cause you to do inefficient things both on the dock and in your line haul operation.
Okay. Thank you guys for the time. Really appreciate it.
Sure.
Thank you. Our next question will come from David Ross, Stifel.
Yes, good morning, gentlemen.
Morning, David.
I want to talk about cargo claims. I don't know if I missed it, but where were they in the quarter versus a year ago?
It was 0.83 in this quarter, David.
Yeah.
I think that's up slightly from it was a year ago, and you would expect a little bit of that as you bring in a lot of new people and a lot of new locations.
It also tends to be a little bit of a trailing indicator. The underlying operating metrics around deliveries before with exceptions and such is all those trends have been improving. We expect to see that getting better from Q3 into Q4 and into next year.
As you grow and become a bigger organization, Rick and Fritz, how do you guys divide up the CEO and President responsibilities?
I tend to focus more on operations, and kind of our execution, and Rick, I'll let you comment on your part.
I guess I would just comment that we're a team. We work closely together, not only Fritz and I, but the rest of the leadership team. We see it as an approach, a team approach as opposed to a carved-out responsibility. I could comment that I work on culture and strategy, but so does everybody else. Again, Fritz has picked up some incremental responsibility, provided good leadership of the operations group since he's picked specifically that function up, but that's no different than in prior periods as he's picked up technology and pricing and some other things as well. Again, Rob came in and picked up the core finance functions, but he obviously participating in our strategy sessions, engaged in return on investments, whether it be headcount or process improvements. Again, we view it as a team approach.
For the last, say, eight or nine years, there's been a strong yield management focus at Saia, and we've seen revenue per hundredweight outperform your peers. A lot of that was due to just repricing from business that was underpriced. Some was a freight mix change where you were able to trade out lower performing business for better performing business. What inning do you think we're in of the overall yield management strategy and getting the type of freight you want in the network at the right price?
It's a constant process, Dave, and you and I have talked about this before as well, but I would just comment that we do a lot of benchmarking and the biggest gap that we continue to have versus the competition is a yield gap. We don't control the external environment, but we control how we price business and who we do business with. Obviously there's a balance between those, and I think you've seen anyone who's tried to materially change their, including us, anytime we've tried to materially change your pricing position in the marketplace on an immediate basis, it clearly has an impact on volume. I think it's part science and part art, and I would comment that I think with our experience, we're getting better at both.
We continue to make technology investments and analytical investments and enhancements to our go-to-market strategies and some of our marketing initiatives, and it's paying dividends. I think as you're well aware of is people have tried to push levers too much, too fast, and it's had generally an unfavorable impact on them because we have a fairly high fixed cost network business. I would just tell you, I think we're clearly moving in the right direction, but we're probably doing it at what I would call a slow to reasonable pace so that we don't upset the apple cart.
Excellent. Thank you very much.
Thanks.
Thank you. Our next question will come from Matthew Brooklier, Buckingham Research.
Hey, thanks, and good morning.
Good morning.
Just thinking ahead to 2020, you gave us some thoughts on the terminal expansion progression. It sounds like maybe at this point could be at a lesser rate versus this year, just because you guys had so much success in terms of finding terminals and opening terminals. Maybe the terminal expansion is down a little bit, but I think, Fritz, you also talked that maybe the technology investment is going to be up. Just kind of a long-winded way of asking for your preliminary thoughts on 2020 CapEx.
Yeah. For us, when we think about CapEx in total, what we experienced this year, it may be down slightly to similar next year. The buckets may shift around in terms of spend between real estate, revenue equipment, IT capital. I would say the relative absolute dollar will likely be relatively consistent with where our guidance was this year, which was the $275-$300. The buckets just shift a little bit. Even the investments that we've made as it relates to the expansion, a lot of them have been lease facilities and those types of things. We don't expect a significant drop-off next year.
Got it. Did we get the September tonnage number? I don't think we got that. I can kind of back into it, but what was September tonnage?
The September?
Yeah. Tonnage growth.
Yeah. Tonnage growth in September was 3.9%.
Okay. Last question. You talked about positioning yourself in the marketplace by expanding kind of in your legacy markets, legacy facilities. Could you take a guess as to how much excess capacity you currently have in the network?
Yeah. Matt, just to clarify, the question is how much excess capacity we have in the entire network or just in the legacy network?
Yeah. In the entire network, best guess, how much excess capacity do you think you have right now if we were-
If I were to look at the legacy, I would say probably 15%-20%. Obviously, there's plenty of capacity in the Northeast right now. Our strategy there is to get the assets in so we can grow into them a bit. Plenty of capacity there. 15%-20% in the legacy.
Got it. That's all I got. Thanks.
Thank you. Our next question will come from Ravi Shanker, Morgan Stanley.
Thanks. Morning, gentlemen. Just a couple of follow-ups here. I think you mentioned something earlier in one of your responses about mix in the Northeast affecting the weight per shipment. Can you just elaborate on that a little bit more? Is that like a natural function of business in the Northeast? Is that expected or unexpected? Is that indeed a driver of some of the headwinds on the weight per shipment?
I don't think it's a big driver. It's close to our average weight per shipment. I think obviously the further you go to the Northeast, it's more of an inbound market and less of an industrial market, and that was just a general comment.
Okay, got it. It sounds like this was just part of the nature of the Northeast and not something unexpected.
Correct.
Got it. Also, you spoke about the network effect of being a 48-state operation, which does make a lot of sense in terms of economies of scale, given the kind of somewhat fixed cost nature of the business. We've also seen some of the large players improve their margin meaningfully. One of the steps they've taken actually is to give up a bunch of freight, and maybe reduce their footprint, because being a large network and a 48-state player can actually be a drag on mix, in some cases, if you're just going off of national accounts. Can you just talk about how you're trying to find the balance between that, trying to find that sweet spot of scale where you get the benefits of being a scale operation and the network effect without the drag of being forced to be everywhere?
Yeah. I don't know about being forced to be everywhere. Obviously, if you look at our terminal count, we're clearly below the most of the call it next tier, more national players. Then I would say, we're constantly working on our business mix to make sure that it's correct and contributory and improving. I would just tell you, we're having good success with that. If you look at the third quarter, our field business, which tends to be your best operating business, was up 17.2%. Our national account business was up 8.3%, and our more transactional 3PL segment of our business was up 2.7%. Obviously, that's across our network and
A portion of that is obviously to and from the Northeast.
Okay, understood. Thank you.
Thank you. Our next question will come from Tyler Brown, Raymond James.
Hey, good morning, guys.
Hey, Tyler.
Hey, just a conceptual question, Rick. When you open, and I'm going to call it a saturation terminal like Long Beach, what does that typically do to your average P&D stem time in those markets? Does it materially improve your P&D efficiency as freight kind of finds its natural terminal? Just any color there.
Yeah. Part of the Long Beach opportunity was to improve stem time. It also give us a better coverage in that market, be able to access some parts, elements of the basin that we couldn't do very efficiently. It's kind of across the board, really. That it was actually pretty close to our Orange terminal opening Long Beach, there's not as big of a benefit there. We've seen before, as you get closer to the customer, you can be more responsive, and there are some cost savings over time. This was more of a capacity, resolving a capacity challenge in that particular market. We always do benchmarking on not only where we have tight capacity items, but where we are with market share in an area, and to make sure that you have the capacity to cover your anticipated growth rates.
That particular one was where we really benchmarked our coverage and our door capacity in the basin compared to competitors that are at our revenue tier or a little bit larger even, and said, "Hey, we need to secure these doors for probably two reasons," right?
Okay, each one's a little bit idiosyncratic, but these saturation terminals not only add capacity, but they're also P&D cost savers, and ultimately, they're service improvers.
Absolutely. Absolutely correct.
Okay. Then can you give the mix on the field national and transactional, just broadly?
Yeah. In terms of the increases year-over-year?
Just your mix in terms of your total book.
We didn't bring that in here with us, but we'll be happy to provide that to you.
Okay. Yeah, no problem. Just maybe my last one. I think you talked about it a little bit, but it seems to me on a characteristic adjusted basis, your pricing is still a discount to peers. If I look at it, your claims have improved over the past few years. Your service footprint is obviously getting closer to that kind of full broad 48 state coverage. Your on-time % has improved. Your Mastio scores are showing improvement. There's really no structural reason or impediment that you couldn't at least partially close that pricing gap. Would you agree with that?
We totally agree with that.
Okay. Okay, I appreciate it. Thank you.
Thank you very much. Our last question will come from Scott Group, Wolfe Research.
Hey, guys, thanks for the follow-up. Can you give us where yields are trending in October?
No. We don't usually give that by month, but I would tell you it's similar. There's not a deceleration necessarily to where we were trending. Right?
In the third quarter, you're saying?
Yeah. I mean, it's actually slightly improved, but.
Okay. Okay. Then.
I guess directionally, we could tell you it's not deteriorating, right?
Okay. Okay. Then sort of big picture, right? You had this sort of breakout on incremental margins in the second quarter, and a setback this quarter, sort of sounds like setback fourth quarter. Other than the maybe less new terminal cost, anything else that's under your control that should give us confidence in getting back to sort of better incrementals next year?
I mean, what's in our control is, we opened or reload from the middle of September to the end of the year. We'll have moved in either 10 new facilities. Next year, what's absolutely within our control is how we optimize and sell into those facilities and better utilize those assets. That's our game plan, right? Our view of this was, gosh, this is an opportunistic time for us to accelerate our Northeast opportunity. We know from long history of getting the assets in place ahead of the growth allows you to grow more efficiently into those assets. I think that as we look at our plans for next year, it's really about optimizing the business in total.
Discreetly, these operations that we've opened in the Northeast and in places like Long Beach, how do you take advantage of those and then optimize the business around it? I think that that's what's within our control. Certainly, what happens in the marketplace and that may be a little less in our control, how we operate, run, and create those incremental margins, that I think in some part is within our control. Yeah, I guess I would add to that just, obviously every year we target certain efficiency opportunities, we started our planning process earlier this year.
Our technology investments are underway. I think the technology deliverables combined with if you slow to halt the expansion and some of the investments that are associated with that, meaning resources that could be used to optimize your line haul network, for example, or something else, are now working all across our network, making sure we're operating at the most efficient levels and using the new tools that we've rolled out. I think that's clearly within our control, regardless of the external environment. I mean, that's a plus control type issue. Again, as we commented, assuming we get kind of a stable to where you get an improved environment, then we think we could be able to do better, right?
Okay. All right. Thank you, guys.
Certainly. Thank you. Speakers, at this time, we have no further questions in the queue. Great. Thanks for your time. We appreciate it. Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your phone lines, and have a great day.