Forward Air Corp (Delaware) (FWRD) 2020 Q3 法說會逐字稿

Thank you for joining Forward Air Corporation's Third Quarter 2020 Earnings Release Conference Call. Before we begin, I'd like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations selection (sic) of [section] of Forward Air's website, www.forwardaircorp.com.

With this morning, we have CEO, Tom Schmitt; and CFO, Mike Morris. By now, you should have received the press release announcing our third quarter 2020 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market closed.

Please be aware that during this conference call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, about the effects of our business efforts and response to COVID-19, including the impacts on each of our businesses, the future plan for our Pool business, steps to bolster our liquidity, steps to expand our operations organically and inorganically, the company's outlook for the fourth quarter and fiscal year of 2020, including expectations for revenues, tonnage and free cash flows, the expected impact of growth and strategic initiatives and those other forward-looking statements identified in the presentation.

These statements are based on current information and our current expectations. As such, they are subject to risks and other factors that may cause actual operations and results to differ materially from the results discussed in the forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call.

The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. And now I'll turn the conference over to Tom Schmitt, CEO of Forward Air.

Thank you, Tony, and Happy Halloween weekend to all of you on the call. Sorry to disappoint upfront, this call is actually not about scary. It's about precision execution of commitments we make and commitments we kept. Specifically, I'm going to address 6 commitments we made on this very call 3 months ago on the Q2 earnings call, and how we kept those commitments, and how we're going to take them forward.

Commitment #1 was, if you remember, we talked about bringing density back, bringing our people back, bringing volumes back to what we call 0-plus, same as last year or more, and we did. In our flagship LTL business, we were there in July. In fact, July was 1.7% tonnage-wise ahead of July last year. August, 4.5%; September, 4.6%. For Q3 overall, 3.6% up over tonnage from previous year. Final Mile, very, very strong growth as well, same for truckload, especially in the asset-light brokerage business. And Intermodal, we see a recovery coming also. So 0-plus same or better volumes than last year happening. That's on the way to our first double, when we talk about double-digit annual revenue growth.

Our second commitment was we will not wait to bring all those high-speed, high-sensitive handling businesses that temporarily went to sleep in March back. We will not wait for that to happen, whether cruise lines, trade shows, concerts, conferences, airlines, whether we bring them back next year or the year after, we know we will, and we will bring them back strongly in great partnership, but we're not going to wait for that. In fact, rather than waiting, we are focusing on another leg of this stool and make this business more multi-prong stronger, more essential freight, more medical supplies. We dialed up those SIC codes as we committed on the call 3 months ago. And in Q3, our essential freight was up 8% year-over-year.

Our third commitment was to do a 1-2 punch. Yes, volumes back first, but complemented very closely by what we called a march for margins, meaning taking pricing actions so that we can make the investments into our drivers and into the service commitments that we have and that we keep towards all of our customers. So Q2, 0-plus volumes was top priority, density restored. Now in Q3, march for margins, specifically in LTL in September and October alone, we did implement a California surcharge of 5%, a high-class upcharge, a class fuel surcharge modification, a low class upcharge, removal of unearned volume discounts and a $3 surcharge for lightweight shipments less than 300 pounds. Additional class actions to come and in truckload, select rate increases also.

In Intermodal drayage, we're going to have a fourth quarter GRI coming. So overall, 1-2 punch committed, 1-2 punch kept, and the impact started showing in Q3. To take the example of Expedited Freight, which is our combined LTL, TL and Final Mile business, in Q2, Expedited Freight had a 5% margin, in July, 7.1%, August, 7.7%, in September, 10% margin for Expedited Freight. That sounds a bit like the second double in double double, double-digit margins, which is also our medium-term commitment, the same way as average double-digit annual revenue growth is a medium-term commitment. We expect that with these measures being implemented in Q3, we'll have a full impact of those measures in Q4.

Commitment #4 was, we are keeping organic expansion going. If you remember last call, we talked about Savannah, where we opened a brand-new LTL terminal piggybacking on our presence in Final Mile. We talked about on the call about our investment into the Columbus Hub, our biggest hub. And in Q3, we kept going. We opened LTL facilities in Columbia, Missouri; in Roanoke, Virginia, also benefiting from our Final Mile presence in those markets. And there's big ones coming within the next few weeks, Allentown, Pennsylvania, conversion from an agent to our own facility. And then the big one in Ontario, California, a greenfield location about to open up, all happening within the next few weeks far from done, more coming next year.

Commitment #5, we said there's no pause in M&A this year. If you remember at the very beginning of the year, we had a Linn Star close in our Final Mile business, a significant step-up for that business unit. And just this quarter Q3, we had a close in Final Mile as well the CLW in Johnson City, wonderful unit joining us, great teammates and Value Logistics in Memphis, Tennessee, a very, very important intermodal drayage market that we wanted to make sure we have a stronger presence in.

And in commitment #6, we also made very certain in everything we do, front office, back office, but certainly, in operations, precision execution is happening. We have record service levels right now, and I'm proud to say we're actually delivering those record service levels with drivers who know us well, our independent contractors. Our outside miles, even in this tight market, if you exclude Los Angeles, a heavily congested area, our outside miles are still in the single-digit area. It's our drivers that we know very well delivering those types of record service levels. So we kept our commitments we made last quarter, and we see ongoing ramp-up of benefits going into the fourth quarter from having kept those commitments, and I want to thank you all of our teammates. I want to thank all of our independent contractors, all of our business partners for truly making each other better. It shows and we're far from done.

For the final commitment beyond the 6 I mentioned, we also have a strong commitment to robustness when it comes to liquidity and cash flow. I'm going to ask my teammate, our CFO, Mike Morris, to address commitment #7, strong liquidity.

Thanks, Tom. Before I give a few quick updates, let me provide some additional clarity on the earnings release we issued last night. First, the $0.06 charge we called out was recorded in other operations and did not impact Expedited Freight or Intermodal's segment results. Second, our fourth quarter 2020 guidance relates to continuing operations only. And finally, our EPS guidance range of $0.71 to $0.75 compares to $0.79 in the fourth quarter of 2019 on a continuing operations basis.

We will be sure to provide this measure of clarity in our earnings releases going forward. Since we are only guiding to continuing operations, let me provide a brief outlook for Pool. As physical retail continues to recover, Pool will return to profitability during the fourth quarter of 2020. We expect Pool's fourth quarter revenue will be between $45 million and $50 million, and Pool's fourth quarter operating income will be between $1 million and $2 million.

Before we go to Q&A, let me close with an update on liquidity and capital allocation. This year has certainly tested the cash flow capabilities of our asset-light business model. Although we greatly expanded our liquidity in response to COVID-19, we were able to remain free cash flow positive throughout the year by actively managing our operations while continuing to make key investments, so we could emerge a stronger competitor.

And if trouble does resurface, we believe we have ample liquidity to support our business and capital needs. So as we signaled on our last earnings call, we began to relax our excess cash position during the third quarter. We said we would reduce debt, and we repaid $20 million on our credit line, bringing our gross leverage down to 1 turn of EBITDA. We said we would resume share repurchases, and we bought back $30 million of stock during the quarter.

We also said we would remain committed to our dividend, and we're pleased to announce a 16.7% increase to our quarterly dividend from $0.18 to $0.21 per share. Our dividend is an important component of our capital allocation philosophy. And between dividends and share repurchases, we have returned over $350 million to shareholders over the past 5 years.

With that, Tony, let's open the line for Q&A, please.

(Operator Instructions) Our first question comes from the line of Todd Fowler with KeyBanc.

And Tom, I'm going to try and refrain from making any Halloween [Jacqueline] high comments about the second quarter to third quarter, but it's a nice improvement. I guess just to start, Tom, can you talk a little bit more about the pricing actions that you're taking right now? From what I heard in your prepared remarks, it sounds like that those are surcharges that were put in place. I wasn't clear if those were going to be all the way through the fourth quarter, if that was just something that was temporary into October? And then, Mike, I don't know if you have an October tonnage number, but I'm curious if those are having any impact on a little bit of trade-off between volume growth and yield?

Let me -- Todd, I'm going to start on both, and then Mike can correct me on the second one. On the first one, there really are 2 things, and they are complementary. There are very specific surcharges that address unique times. So for instance, if there's a congestion out of the West Coast, as we all know, a lot of traffic coming into Long Beach. We, like everybody else, are going above and beyond to make sure we keep the commitment to our customers. That means, in some cases, getting a truck and a driver almost no matter what it costs because the commitments to our customers come first. There's a cost to that. We do not expect that, Todd, to happen like on an ongoing sustained basis forever. So that's a temporary surcharge. There's a time limit to it. Some of these temporary surcharges have a time limit until the end of this year. That's an example of that. That's 8 more weeks. Now if for some reason, unexpectedly, this type of temporary spike close on, we have the same commitment to our customers. We need to make the same investment in securing transportation, and we will. And then there may be an extension.

A lot of the other measures is us becoming, frankly, as a company, more disciplined and better, getting compensated fairly and fully for the service that we provide. When there was revenue leakage in the past, we are making very certain to step up in revenue capture. Scott Schara, our new CCO, has a ton of experience, pun intended, in that space. We have a pricing department that we're actually fortifying. We brought in people with significant 3PL experience with significant LTL pricing experience. So you see that whole machine of surgical precision execution in pricings are being stepped up. So roughly speaking, Todd, 2/3 of what I mentioned are us becoming better on a permanent pricing perspective, 1/3 of what I mentioned is temporary to address peaks that we expect to last 4 weeks in a couple of cases, perhaps a couple of months, but not forever.

On the second point, just very, very briefly, I think we've got the sweet spot very, very right. The October volumes, and Mike, you can actually get as specific as you want to get and can get, I like the October volumes the same way I like the September volumes, I just like the pricing of it better.

Yes, Todd, the -- so far, quarter-to-date, 30 days into October, our daily tonnage at LTL is up around 6%. It is a fair question, though. I think some of the pricing actions will take -- might drive a bit of that tonnage out of the network as we go through the balance of the quarter, but it really gets to how tight the truckload market remains and how robust consumer demand is. And that's one of the more challenging things that we're trying to address in our outlook for the fourth quarter is the uncertainty that's created by the COVID situation or perhaps better put the volatility around these potential future scenarios, but 6% so far, we'll see how the balance of the quarter goes.

Okay. Great. All of that's really helpful. I appreciate the detail there. And then I guess, Tom, so the mix of freight that you've got in the network, I mean, obviously, the team has done a great job of backfilling some of the dormant freight that's out there. Can you speak a little bit to the characteristics of the freight? I mean is this stuff that you would have in your network consistently going forward or some of this kind of a temporary fill until some of your core customer, your core end markets come back?

Tom, maybe I'll go first and you can chime in. So Todd, the stuff that is really kind of driving the bus right now is organic growth in the new verticals we've been talking about for a long time -- for quarters. We're making a lot of headway in, call it, the industrial side of the LTL market, growing in 3PL, growing through other avenues beyond our legacy, continue to serve the legacy very well. That is still in a bit of a recovery mode coming out of the COVID situation. The growth that we're bringing in from an end market perspective is where we want to be for a while. Some of the stuff that came in early on when we were building tonnage was perhaps a little light or going a little too far or needed to be recalibrated, but once we stood up density, then we pivot to being more selective, and that's kind of what took place in the back half of the quarter, but regardless -- what I'm saying is, regardless whether a piece of freight stays or goes, it's in the markets where we want to be for a while.

And that capability of steering it the way, Mike, you just talked about, we really stood up as a company over the last 12 to 18 months, and we're not done standing it up even more precisely. We know by SIC code, kind of which industry is heavy e-commerce versus light e-commerce, one category of medical supplies that's heavier than another category. We know which SIC codes tend to have which types of qualities. And then from a sales call perspective and customer call cycling perspective, we dialed up those types of industries. So there is -- it's not coincidental that heavy e-commerce or medical supplies make up more of our total mix today than it did a year ago. It's a consequence of us dialing up those SIC codes.

Okay. Yes, that makes sense. And I guess when we look at the yields, too, it speaks to the fact that you're getting compensated the right way for the freight that you've got in that work. So I'll ask one more and then I'll turn it over, but as we think about kind of the mix within Expedited Freight at this point between Final Mile, truckload, do you have a view on where the [OR] for that segment should be kind of on a normalized basis, not really thinking about guidance for '21, but just when we think about the mix and kind of the growth rates, where should the normalized margin for that segment shake out at?

That's the second double, right? I mean it's a straightforward 2 segments, and we need both at a double to get the whole thing to a double. That's where we're driving. You have a lot of inorganic growth in Final Mile as we lap the Linn Star acquisition. So one more quarter of that, and then we will have lapped that, but we are seeing good organic growth in Final mile. We -- that is a strong contributor to the overall margin. Truckload is making a lot of progress towards getting to, call it, a 5 to 6-ish percent type margin. And then inside the old LTL, we need that coming along in mid-teens, right, in order to kind of make all that work together. That's what we said in IR day, and that remains.

Next, we go to the line of Jack Atkins with Stephens.

And so I wanted to go to this announcement. I guess it was in late September about the service that the LTL service that you guys are rolling out in Missouri and Virginia. It -- I guess from what it seems like, and you guys, correct me if I'm wrong, you're utilizing Final Mile facilities to sort of expand the reach of your LTL network. Is there sort of a target over the next, call it, 12 months of additional markets that you are looking to expand into across the country? And maybe, I guess, more broadly, how many -- how many places or markets do you have a Final Mile location, but not an existing expedited LTL facility?

Okay. So it's hard, Jack, for me, it goes like a series of 3 questions in 1, but I could...

I'm sorry, I can break it up, I'm sorry.

It's fine. No, let me try and probably will hit them all. So on the first one, the decision to open up new terminals, again, is it's not exactly an exact science, but it's close to a science. So we do know the origins and destinations of freight flows. We do know what our customer base actually is asking us to do more. I mean so this is working with the best in terms of both the best data, but also the best customers, like which origins and destinations should we be serving that we're not serving right now. That's like how Savannah, for instance, popped up. And those trade flows, as you know, Jack, are publicly available data.

So between the data and our customers speaking and us listening, that's a fairly obvious kind of lineup of locations. And then there's a certain level of ease, if we have an agent already in those locations, it's a fairly simple exercise as we dial up the volumes to then switch it over from an agent to our own location. Also, when you have a Final Mile presence, it also is somewhat easier. We have 80-plus Final Mile locations right now. We have 93 LTL terminals. I think actually now 95, if I add the latest 2.

There's still quite a few in the low teens locations where we have a Final Mile presence and not an LTL. So we can actually piggyback a bit more. That's something a pure-play LTL or Final Mile company cannot do as efficiently as we can, but (inaudible), we have no problem when we see the demand from our current customer base plus trade flows for potential future customers indicating that another location in greenfield is a good one, then we put a flag down there. That's what's going to happen in Ontario, California. That's greenfield. And it's a location that our current customer base and future customers want us to be, and that's where we're going to be. So I expect us in the combination of conversion from agent, piggybacking on a few more Final Mile locations as well as some more greenfields. What you see as to this year with a handful of LTL terminal openings, you should expect that to last on into next year. Mike?

Yes. What I would add to that is there's actually a couple of situations where Final Mile launched out of LTL, 2 markets. It's not to make it sound, Jack, like some overly complicated Rubik's cube, but we do have a very kind of healthy dialogue as a leadership team and with the operations and sales, around which of these approaches make sense where, is it -- let's sell some LTL zips out of a Final Mile terminal, and they can handle the PUD. Is it, "Hey, let's launch Final Mile out of an LTL terminal because there is an award that we're bidding for there."

Sometimes both are so big, they actually co-habitat at the same terminal. We split the rent. Is there an organic growth opportunity, should we flip an agent? It sounds complicated, but there's really only 6 type of flavors here. And then we have a very active dialogue throughout the course of the quarter and the year from a planning perspective as to which flavor can we use, what's the most logical next step. So it's a nice degree of freedom that we have. And one of the things that I think is important to consider in this is the people that run the operations in this respect, they're all LTL people by their origin of their career.

So the Final Mile people that we've acquired work with LTL people who are also Final Mile people from our kind of legacy workforce, if you will. So we've got a really good blend where a Final Mile person can think LTL and an LTL person can think Final Mile in terms of this high level planning. I know it's very different freight on the ground, but when you look at Chris and Tim and Scott and kind of the whole team, they've really got experience in both, and that really helps decide which flavor is going to fit where in the country.

Okay, that's great, it's exciting to hear. Maybe a couple of other quick questions. I guess when we think about -- and Tom, you referenced it in your prepared comments, but the outside mile usage. Historically, at this point in the freight cycle, we've seen that go up as owner operators have left the network to operate in the spot market. Are you seeing that at all show up so far this cycle? And I guess, how are you thinking about the percentage of outside miles as we sort of move forward over the next couple of quarters here?

Jack, let me take that one. So this has been an interesting evolution over the past couple of months. The truckload market began to tighten and the speed at which it began to tighten was aggressive. And I think perhaps that's a characteristic of our cyclical swings in this industry going forward. It seems to turn and it seems to turn pretty fast.

We were ready. We didn't move as quickly as we should have perhaps last time. And so we've been preparing for this as a team. If you exclude California, and I'm going to come back to California. But if you exclude California, broker power was around 7.5% of miles in the third quarter. That's pretty good. It compares to about 3.5% in the prior quarter, but 3.5% is almost a bit unnatural given the normal imbalance in the network.

So a 5% to 10% type of outside miles is operating pretty well. And that is the case, 7.5% network wide, except California. If you bring in the California effect, that 7.5% goes up to 14.5%. And with all the inbound freight coming into California, coming into the port of L.A., there's just an intense amount of congestion that we saw happening we respond to, but also that led to our first pricing action, which was an increase to our California outbound surcharge so that we could get compensated and get the kind of power that we need to get to, to give our customers the service we promised. So this one is really unique. One node in the network is driving half of the outside miles. If you look outside of California, right now, we're in the zone that we'd like to be in.

And let me just add to the first part. Briefly, you said we were prepared. I mean I do want to say between Chris Ruble's operations team, Kyle Mitchin's recruiting team, Matt Casey's safety team, what we did very consciously over the last 2 years, to maximize the odds that for drivers in solo and teams, Forward Air remains their most desirable professional home has been nothing short of outstanding, whether it's our driver boards, where we listen to them, we prioritize their needs, predictable home times, short lines when they call dispatch, having a driver app, which we're just launching now, where they can run their business out of an app, that's literally 21st century in a very advanced state.

We -- so they can run their own business the same way anyone else in a progressive state would run their own business. We've done a lot to make it very, very attractive for people to choose this to become their home. Our classes right now -- our classrooms are full and retention rates are still phenomenal. So I do want to give a big shout-out to our operations, recruiting, safety teams to really, really work with our drivers who are the best in the industry, but also make this a very hard place for them to leave.

I mean there's lots of incentives out there for them to leave. I mean we all read the same articles, and we all see the same reality. Some of the largest companies on earth are putting tremendous incentives out, but we do have an operating system here that makes it a very attractive place. And so that less than double digits outside California is a result of a lot of very focused effort and not coincidental.

Okay. No, that's helpful. Maybe just a quick follow-up on that point, Mike, from earlier. I mean do you feel like that to the degree that you have some creep higher in the percentage of outside miles, you're going to be able to get the rates that you need at the same time from your customers so that it's not going to be the type of margin erosion issue that we've seen in prior cycles. It sounds like you're pretty confident that that's the case?

Well, yes, I mean -- but it's interrelated, right? You need more rates so you can recruit and retain the power so you can provide the service that justifies the rate. I mean that's the ecosystem here. So we have to be able to recruit and retain the driver so that we can give the service level that we promised.

And Jack, I think I mentioned that also in the last call. Now it's been, I guess, 7 or 8 months since middle of March impact hit all of us. I've never talked more with customers than I have in the last 8 months in my career. And these are very, very supportive, collaborative conversations, but they're also straight talk conversations. We keep our service commitments to our customers, and we expect to get compensated fully. And the second part is equally nonnegotiable as the first part is.

Our next question comes from the line of Scott Group with Wolfe Research.

This is Jacob on for Scott. It's been a few quarters since you announced LTL and TL combining to create the Expedited Freight segment. And clearly, there have been a lot of challenges out of your control over this period. So can you provide an update on sort of what operationally is going to accomplish in this time? And what's still to go?

Sure. And out of your control is a good phrase because we've been focused intensely on what we can control. And what we can control is the strategy on the ground from an ops perspective, to bring these things together. So think of truckload in LTL as 1 fleet. And the real benefit there is on the line haul and the efficiencies that we get on the line haul, but also there is a retention element in that we offer other opportunities for revenue to our drivers if a line haul run isn't available and that really made a big difference during the COVID crisis, many of those owner operators perhaps would have gone out of business, frankly, and we were able to find truckload moves.

Again, we don't run PUDs in our network. We're a 53 footer LTL. So these are truckload line hauls. And that really fits together well. So we made a lot of progress in terms of thinking of this as 1 fleet and then growing outside opportunities, be they through truckload or through our growing brokerage operation in truckload. The other main integration point has been on the -- in the terminal and in the pickup and delivery with respect to Final Mile. Again, from an asset perspective, this is a straight truck with a liftgate. And that is the type of asset that can deliver pallettes, that can deliver dishwashers. So we do have, I think it's up to 9 co-mingled PUD markets where the pickup and delivery for Final Mile can support line haul, I mean, support LTL, and the timing of the freight flows between these 2 modes marries up nicely.

In our LTL business, we tend to get busy on a Friday. We line haul over the weekend and Monday and Tuesday are busy PUD days. In Final Mile, Wednesday through Friday tend to be the busy PUD days. That lets us level load revenue for the owner operators that provide our Final Mile service. It gets -- gives us a recruiting angle that we can give them more opportunities to maintain their revenue and have predictability around their cash flows, and we actually use that almost competitively in these markets to help really drive outstanding levels of customer service in Final Mile and in LTL. We -- with some of the announcements like Savannah and the others that we talked about earlier, you have the early stages of co-mingling on the dock, and that's an example of a synergy that happens from a dock perspective.

We almost have a very, very cheap call option on a market if LTL or Final Mile says, "Hey, I want to get in there." They can work together at a piece rate basis internally, and sell into those ZIPs or bid on that market for the big box retailer freight. And the goal in those is that they get big enough that they got to get kicked out and get their own building, but it's a great way to get started. And I think that's another example of the synergy that we've really been able to extract that Expedited Freight.

And then, just to perhaps put it this way to recap and summarize, Mike, what you just talked about. Us calling this an Expedited Freight segment is not a reporting exercise. It's an operational synergy articulation and activity. So over-the-road between TL and LTL, Chris Ruble pointed out early on that the backhauls that may be TL when LTL was the outbound move was like 5x, 10x early on when we put that segment together. And Mike, you just talked also to the local synergies, which clearly with the LTL and Final Mile terminal openings, routing from 1 building, using the same drivers, in some cases, on a light installation day to do pickup for LTL. So again, there's a lot of underlying activity that drove this 1 segment so this is not a reporting exercise. This is actually an operational synergy reality.

Got it. That's helpful. And then, I guess, turning to the Intermodal segment. Trade volumes were down 12% in the quarter. What do you think is driving this because I look at ocean volumes and the transpacific and particularly, seeing very strong rail intermodal volumes, pretty good. Why do you think you're seeing a pretty significant decline there?

Yes. My strong expectation in the last few weeks would actually confirm that is that this is primarily a time delay issue. And depends on whether you deal with forwarders or the shippers directly, and depends on how much forward stocking by customer and by industry you still had. You deplete your inventory first and then you replenish in some cases.

So literally, when you -- so I would expect what you just described to show up. But what you typically have is that there's a 4- to 6-week delay just based on the ocean move itself and then it making its way from the coast, oftentimes, the West Coast over to the Midwest and East Coast. So there's a travel kind of component that takes days, in some cases, weeks.

And then on top of that, especially with the uncertainty that, Mike you talked about, a lot of our customers had forward stocking of inventories that they depleted first. So if you take the, whatever you call it, 4 to 6 weeks of depleting inventory, then you add the ocean vessel move time and the over the country time, that can add up to a 2-month or even 3-month time delay between what you described and what you see, and that's real, and what shows up in intermodal drayage on a rail yard on the East Coast or in Chicago. So -- but we have been seeing the consequences of that pick up in the most recent weeks. So when I talked about 0-plus, like having the same volume as we had a year ago, Intermodal just started having 0-plus weeks and what you described what we had in the quarter was not that yet, but it is now.

Our next question comes from the line of Tyler Brown with Raymond James.

Tom, so I really appreciate the comments on diversifying the freight base. I think you mentioned that those essential SIC codes were up 8%, but I'm just broadly curious, just what is the mix of that essential freight in the book today?

So you got to come around -- it's Mike, you got to come around to a definition of essential, right? The bulk of it is, call it, consumer and medical type of SIC codes. That's the meat of it.

Okay. But is it 1/4 of the book? Or as you defined it as essential?

Yes, it's around 1/4 of the book. Yes. Look, as you know, especially as a wholesaler, it's really hard for us to know what's inside that box unless it's obvious what's inside the box. And so we're doing our best with some of the good intel, we've stood up from an IT perspective to get a little more clarity here, but that's our best estimate.

Okay. And then if I come back to freight characteristics a little bit, so one thing I noticed was the weight per shipment was up sequentially. It's still flattish year-over-year, but as you have more success in that traditional LTL market, should we really be thinking about weight per shipment rising into '21, '22? And is that really a strong KPI of your success there?

Yes. I would say, yes, one of the things -- I mean when you look at our door-to-door business, and we could talk about the quarter or step back on the whole year. On a door-to-door basis, we're pushing on 800 pounds, 750-, 800-pound type stuff. And that's the type of weights that we really want to grow in to capture the density benefits in the network. But the legacy business, which was hit pretty hard by COVID and had some absolute declines in volume has had some declines in weight as they have grown in an e-commerce space more broadly kind of as part of the effect of COVID. So what you have is you have medium-term progress on the objectives for door to door, but that is still a smaller percentage of the overall shipments in the network. And so the impacts on airport to airport have been suppressing the weight math. But inside the door to door, which speaks to class-based shipments, 3PL and other door-to-door applications, yes, we are pushing 750-, 800-pound type freight.

Okay, okay, that's helpful. And then maybe quickly, I know you have some larger investments queued up with Columbus, but how do we think about '21 CapEx at a broad stroke? Is it $30 million, $40 million? Or is it more than that?

We don't think it's actually going to be all that big of a blip, and we're still finishing off our planning here now, but one of the things that's been happening in our CapEx over the years I've worked here, past 4 years, is there's been a bit of a rotation. So we had some heavy CapEx when I joined, which was really churning through the town fleet and getting the average age of our trailers down to where we wanted them. As that abated, we've had some heavier -- we filled it in with some heavier CapEx on IT as we had to catch up on some technical issues there and build a platform for our -- beyond our double double approach. So as that starts to slow, we'll feather in the CMH. It's a big investment. It's going to take a couple of years. And so we'll be able to spread that over the course of '21 and into '22. So it shouldn't have a material blip outside of the normal standard fluctuations of our phenomenal CapEx.

Okay, yes, that's helpful. And then maybe my last one. So Tom, maybe what is the longer-term vision in Intermodal? So I think at this point, you've completed something like 11 intermodal transactions. You probably paid low to mid-single digits multiples of EBITDA for them. So very attractive and accretive uses of capital. It feels like you've got a very well-oiled integration program. You've got a great platform to work from. So should we still be thinking about a couple of tuck-ins a year? Do you think you could go faster? Are there some bigger maybe central states or Atlantic trucking type opportunities out there, but just some big picture thoughts on Intermodal?

So Tyler, to add to your last kind of question or set of questions, the answer is yes, yes and yes. So yes, we -- this whole trucking model of like buying to that fit our model and our grading sheet from the operating system compatibility to kind of the geographic distribution extremely well, we will keep doing that. So you should be expecting us doing what -- exactly what we did the last few years, where, on average, there were 2 tuck-ins a year.

We also, secondly, and this is why it's an and, not an or, we are challenging ourselves how can we actually increase the amount of deals that we look at, at any given point in time and how can we speed up the process. So our leadership team there, Michael Hance, Kyle Ricketts, they've done a tremendous job kind of just getting more people on the Forward team into the process so that and shortening the process itself. We still -- we will be pushing to can we actually get more [Brian Johnson] and likes looking at more opportunities so that we can actually get more deals (inaudible).

So there's something about, yes, tuck-ins, we will continue doing. Yes, we will look for ways to get more done at the same time. And then the last one, to be very, very clear. I've been challenging the team, and the team has lived up to the challenge. We are looking at larger ones, too, not gigantic ones and frankly, always within the discipline of the current model. So a larger one still has to grade out positively on the exact same criteria that we have, but over the last couple of years, we had more than one that we were very close to, and we won't confuse the efforts with results that was in the 3-digit revenue category and as long as they fulfill the same disciplined criteria, we'd love to do that. So we have strong growth expectations into that segment.

There's also a very, very good interplay between the trucking industry and intermodal drayage industry. You could even see ourselves kind of thinking about can we augment intermodal drayage by adding a brokerage leg to that, wherein some cases, actually, we use outside providers to do that. So this is an important part. And Mike, you mentioned before, this is our second rock star segment. I'd like to find a way where we keep the tuck-ins going. We have more of them going, and we have larger deals going also, that fulfill the same disciplined [criteria].

What about geography because going back to the question about transpacific, I mean, I guess the problem is you're not really on the West Coast. Is that something that you categorically want to stay away from? Or would you look at West?

We are -- so that's an incomplete answer. I know -- yes, we are looking at the West. We have several opportunities in the pipeline, Pacific Northwest, because everybody in the top West Coast thinks about L.A. and California and Long Beach first. The West Coast is fairly long. There's several opportunities in our pipeline, and we'd love to have a footprint that includes the presence on the West Coast.

And our last question in line comes from Bruce Chan with Stifel.

Just another M&A question here at the risk of beating a dead horse. You all obviously haven't been shy about driving growth through Final Mile and Intermodal, but is there anything philosophically that would prevent you from looking at M&A in LTL? Or does it just really come down to the opportunity?

So again, this is something about where we -- and I use sometimes labels or imperatives to kind of characterize the type of leadership imperatives that we, as a company, live. We did remove ceilings. I mean what I mean by that is, in the past, we looked at this model over the last 5, 6 years to either be intermodal drayage or being Final Mile. Those 2 still they work wonderfully. We keep doing those, but we are looking left and right. We are looking left and right from a vertical integration perspective. We could go further upstream in the supply chain. From a moat perspective, there's nothing wrong about truckload brokerage. And even from a geographical perspective, there's a lot of opportunities in our pipeline right now north of the border. So the answer is we are keeping the current success model going and we're very open minded augmenting it by looking left and right.

Okay great, that's really helpful. And then just another question here. It's been a while since we've talked about the legacy TQI business, but as we kind of think through a potential vaccine scenario, what's the setup there for that pharma, life sciences business? And how are you all positioning?

So clearly, I mean, like probably every transportation company, whether it's surface transportation or forwarding, we are talking to our customers. We are in direct negotiations in some cases about where we can help. So we are part of those supply chains, our domestic and international forwarders are part of those supply chains, and we're working with them on it. And same is true actually with airlines also. So a lot of our customer base, international forwarders, domestic forwarders, airlines and in some cases, us directly with some of our customers. This is playing right into the conversation we had 10, 20 minutes ago, more essential, more medical supplies and these things don't just happen to us. We have to earn them by working with our business partners, which is what we're doing. So we should be expecting to be part of that.

Now that concludes Forward Air's third quarter 2020 earnings conference call. Please remember that this webcast will be available on the Investor Relations section of Forward Air's website at www.forwardaircorp.com shortly after this call. You may now disconnect.