奧多明尼昂貨運 (ODFL) 2014 Q3 法說會逐字稿

Good morning and welcome to the third-quarter 2014 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through November 13 by dialing 719-457-0820.

The replay passcode is 8100135.

The replay may also be accessed through November 13 at the Company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding Old Dominion's expected financial and operating performance.

For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

You're hereby cautioned that these statements may be affected by the important factors among others set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release, and consequently actual operations and results may differ materially from the results discussed in the forward-looking statements.

The Company undertakes no obligation to update publicly any forward-looking statements whether as result of new information, future events, or otherwise.

As a final note before we begin, we welcome your questions today, but ask in your fairness to all the limit yourself to just a couple of questions at a time before returning to the queue.

Thanks for your cooperation.

At this time for opening remarks I would like to turn the conference over to the Company's Executive Chairman, Mr. Earl Congdon.

Please go ahead sir.

Good morning, thanks for joining us today for our third-quarter conference call.

With me this morning are David Congdon, Old Dominion's President and CEO; and Wes Frye, our CFO.

After brief remarks we will be glad to take your questions.

We are pleased to report that Old Dominion had another quarter of strong profitable growth and profitable core revenue increasing over 20% and Earnings per Share were in the 28.6% to $0.90 per diluted share.

Our revenue per share and (inaudible) set quarterly records for us and rate of growth as accelerated for each quarter throughout the year.

We continue to gain market share by providing a superior customer experience and also refining our business model primarily through the development of new services and the application of new technologies.

We have carved out a unique position in the industry by consistently and successfully executing on [scores of] business principles and strategies.

Our long-term record of profitable [growth probably] would not be possible without the high-quality and tremendous dedication of our employees.

Recognizing the performance of our team today I'll mention our ongoing commitment to consistent -- to continuous investment and equipment and infrastructure as well as continuous education and training of our employees.

Investing in our people and providing them the tools and resources they need to perform their jobs effectively is a significant cost of business, but it is absolutely essential to creating the quality organization that we enjoy today.

We are committed to continuing these investments necessary to deliver superior service which will continue to drive our long-term goals in earnings and shareholder value.

Thank you for joining our call today.

And now, here is David Congdon.

Good morning everyone we are pleased with our third quarter and year-to-date results for 2014.

Our basic business model of delivering superior service at a fair price continues to consistently drive our long-term growth.

Furthermore, the favorable economic and pricing environment, combined with improved density and continued focus on efficiency improvements continued to drive improvements in our operating ratio.

The third quarter increase of 18.7% and LTL terms compared with the third quarter last year produced record density metrics virtually across the board.

At the same time we had a slowly expanding but positive economy that contributed to a rational pricing environment.

We are pleased with the third quarter's LTL revenue per hundred rate, which increased 2.2% excluding fuel surcharge.

Especially considering the 2.5% increase and LTL weight per shipment and 1% decline in average length of haul for the quarter which negatively effect this metric.

We believe this performance in view of management combined with our strong growth in LTL terms highlights the strength of our business model.

As we discussed in our last call, we continued to expand our workforce in the third quarter in response to our strong growth in LTL tonnage.

We estimate that it takes about 6 to 9 months for new employees to fully learn our processes and procedures and to make a positive contribution to productivity.

Consequently we continue to experience some negative pressure on our [dock productivity] metrics.

Despite this we are pleased to introduce a 22.3% incremental margin primarily driven by the increased density and yield I've already mentioned.

As we look to the end of 2014 and beyond we believe that Old Dominion remains well positioned to continue outperforming our industry.

Due to the discipline, execution and investment needed to operate our business model effectively and profitably we believe we have created, and have the ability to sustain a unique, competitive position for the Company and its shareholders.

Thanks for being with us today and now Wes will review our financial results for the quarter in greater detail.

Thank you, David, and good morning.

Old Dominion's revenue expanded to a new quarterly record of $743.6 million for the third quarter of 2014, up 20.6% point from $616.5 million for the third quarter of 2013.

Our earnings increased 28.6% to $0.90 per diluted share from $0.70 per diluted share.

The strong growth was driven by an 18.7% increase in LPL times comprised by a 15.8% increase in LTL shipments and a 2.5% increase in the LPL weight per share.

Our revenue performance also reflects a 1.6% increase in revenue per hundredweight, or a 2.2% increase if you exclude the effect of fuel surcharge.

As David mentioned, our quarterly revenue per hundredweight was negatively impacted by our increased weight per shipment and declined an average length of haul.

The directional changes in weight per shipment and length of haul have now be consistent for 11 consecutive quarters reflecting the ongoing shift in our freight mix to a higher weight in contractual business and increased volume in our next day and 2 day regional lanes.

For the third quarter of 2014, monthly LTL tons per day decreased sequentially by 1.1% from July to June and increased by 2% at 2.8% for August and September respectively.

Historically sequential trends declined 2.5% for July an increased by 0.5% and 3.3% for August and September respectively.

On a comparable quarterly basis LTL tons per day increased 18.8% for July, 19% for August, and 18% for September.

We estimate October LPL tonnage to be a up approximately 21% versus the same prior-year period and gets a fairly easy comparison.

For the fourth quarter of 2014 assuming normalized sequential trends we expect LTL tons per day to increase at a range of 19% to 19.5% compared with the fourth quarter of 2013.

Monthly, year-over-year tonnage increases during the fourth quarter of 2013 compared to 2012 were 8.5% in October, 10.3% in November, and 15.4% in December.

We expect revenue per hundredweight, excluding fuel surcharge, to be in the range of 2% and 2.5% for the fourth quarter compared with fourth quarter of last year.

Old Dominion's operating ratio improved 110 basis points to an 83.0 from third quarter, from an 84.1% for the third quarter of 2013, driven primarily by increased freight density and yield.

We also continue to benefit from savings from fuel purchasing strategies and fuel efficiency which contributed to a 70 basis-point reduction and operating supplies and expense.

Capital expenditures were $93.4 million for the third quarter of 2014 and $312 million for the first nine months of the year.

We estimate CapEx for the entirety of 2014 will total approximately $385 million, including planned expenditures of $132 million for real estate, $206 million for tractors, trailers and other equipment, and $47 million for technology and other assets.

We expect the sale of assets during 2014 to be approximately $20 million for a total net CapEx of approximately $365 million.

And we expect to fund these expenditures primarily through operating cash flow, as well as our available borrowing capacity if necessary.

Total debt to total capitalization was 11.4% at the end of the third quarter of 2014, compared with 13.4% at the end of 2013.

Our effective tax rate for the third quarter of 2014 was 37.1% compared with 36.9% for the third quarter of 2013.

We expect an effective tax rate of 38.6% for the full quarter of 2014.

This concludes our prepared remarks this morning, operator we would be happy to open the floor for any questions at this time.

Thank you.

(Operator Instructions)

We will take our first question from Allison Landry with Credit Suisse.

Good morning, thanks for taking my question.

The first question I have.

So consolidation has been a pretty hot topic across most every sector in transports recently, so I just wanted to sort of get the LTL's perspective on this.

Whether or not you've seen any recent changes in your sector and if there is any incremental opportunities you are seeing for tuck-in acquisitions?

Allison, this is David.

We haven't really seen any consolidation activity occurring recently as far as acquisitions are concerned.

You know, we really don't have any on our radar as fell as LTL companies or anything for that matter at this point in time.

You know we have LTL acquisitions because we are already covering all 48 states and successfully growing organically, so in LTL acquisition would not be important to us.

Okay, that's fair, that makes sense.

And then as a follow-up question, so how would you describe your overall capacity right now from an equipment and a terminal or [door] perspective?

And I guess sort of what I'm trying to get at there is, you know, sort of your initial thoughts on CapEx expectations for 2015.

So as history has shown Old Dominion has been perhaps the only LTL carrier to continuously invest in CapEx for real estate, or maybe we have been the most significant investor in CapEx for real estate.

We keep an eye on our capacity at all times and we have invested where we have seen where our growth has been the strongest and where our growth is projected to be strongest.

So if you look at 224 service centers across the country, you will find some that have 30% to 50% capacity, and then you will find some that might have 10% or 15% capacity and those are the ones we are probably looking at for expanding our capital going forward.

We have not yet completed our estimates for CapEx for next year.

We will plan to announce our 2015 CapEx budget on our call in, I believe it's January late January or early February.

Our fourth-quarter call we will announce our CapEx for 2015.

Okay, great, that's all for me.

Thank you for the time.

Thank you.

We will take our next question from Jason Seidl with Cowen and Company.

Hey guys, good morning.

Good morning.

You talked a little bit about the declining issues of productivity on the dockside.

Is this a function of you having to hire new people or is it a function of your tonnage growth is far outpacing the industry, or a little bit of both?

Well, it's a little bit of both but we definitely had to add our warehousing, I believe the press release indicated that we have added nearly 2000 employees over the last year and 800 and some odd were added just in the third quarter.

So in response to this strong and accelerating tonnage growth, we have added a considerable number of our warehouse workers.

So that should probably that pressure should probably continue at least for the fourth quarter.

Well you know the number of people we have now, you know, once you reach your sort of peak tonnage and several per day in September, that carries out through October, November all up to the week before Christmas.

So we should not have to add any new people appreciably at all during the rest of this year and we should be good with our headcount going into the first quarter of next year.

So we anticipate getting some of that productivity loss back as the people get their feet on the ground and get up to maximum productivity.

It takes today with all the technology we have on our docks and our methods of operation on the dock and loading trailers, we believe it takes 6 to 9 months for a dock worker to get fully productive and to start making any contribution toward improved productivity.

That is actually very helpful color, thank you.

I guess a follow-up, David, you know the rest of the industry has just started doing another round of GRI increases and I do realize that you guys historically have done it a little bit later than your peers.

Do you think the market can handle this?

Do you think we are going a little bit too much to the well with the GRI customers?

I'd love to hear your thoughts.

It will be interesting to see how this all shakes out.

I was frankly a little surprised how early some of the other carriers came out with the GRI.

It was a surprise to all of us in management at Old Dominion that happened.

But you know that is a company specific decision that they made.

We are still in the process of studying our cost and our numbers and have not yet determined when or how much rate increase we plan to take this year.

Okay, those are my two.

Gentlemen, I greatly appreciate the time as always.

Will take our next question from Bill green with Morgan Stanley.

Hi there.

You know I wanted to follow up on this whole idea of productivity in the fourth quarter.

Maybe, Wes, when you think about the sequential change you talked about it from a tonnage standpoint.

We like to think about it on the OR basis.

Is there anything in the cost structure that makes looking at sequential changes in OR fourth quarter or third not useful this time around?

Well, obviously we're not giving guidance for the fourth quarter of any incremental margins are any margins at all.

But I guess we have had incremental margins of about 20% for every quarter this year and so we often say, as long as the pricing remains stable, and as long as economic macro is in a reasonable position.

And we still have, I think, the ability to improve our operations and efficiency through, as David mentioned, the fourth quarter, we should see some productivity improvement.

We should certainly be out of our -- at the high end of our range of 15% to 20%, given those conditions.

Okay.

And when you look at what is going on with your tonnage growth, I assume that some of what we see going on with the rails, of course with the truckload companies as well with capacity being as tight as it is, and with the aggressiveness we are seeing from some peers on pricing efforts, that all of this is combining to driving some pretty terrific tonnage-growth rate for you.

How long do you think this is sustainable?

I know that is tough to sort of answer and I realize you don't give guidance.

But I would assume next year, as we think about it, we should see some more tonnage growth but I don't know what your thoughts are.

It would be helpful to hear your perspective.

It's sure we are seeing spillover but what we are doing strategically and to maintain our very high level of customer service, especially in the Pacific Northwest where, as you know, Bill, the rail service is not good.

And even in some other lanes we are actually putting on our own drivers and equipment.

So we are invested -- in fact we have already invested $10 million to $15 million in additional tractors and additional trailers and additional drivers replacing the rail service with our own equipment.

I don't know anyone else who is actually going to that investment to do that, and we know what's important to us is to maintain high levels of customer service.

And you saw that our CapEx went up somewhat from our last guidance and that would be one of the reasons is this making sure that we are properly investing to maintain a high level of customer service.

Bill, I will add a little bit more to this.

You know clearly there has been an increase in demand for trucking services across all sectors of transportation.

With the inter modal truckload, there has been increases of demand for the LTL carriers as well, and there is clearly a lot of constraints on growing capacity.

The capital side of it is very intense.

The driver shortage is real.

The cost of doing business, the taxes, our regulation, all of that is putting a damper on growth in capacity.

So I believe that we are in for-- this is not something that will go away next year or the next year.

I think we are in the long term on capacity growth and increased demand.

So what that probably means is that it is probably yield management and pricing is good for the trucking industry.

Really solid quarter, thanks for the time.

Will take our next question from Chris Weatherby with Citi.

Thanks, good morning.

I wanted to ask a question on driver and pay and potential sort of unionization threats that we're seeing at some of the other LTL non unionized LTL carriers in this space.

I want to get your sense on is there maybe how you see the driver wage inflation going forward.

You have obviously done a lot of hiring.

Been very successful in getting bodies into the business.

Just kind of curious about your thoughts, not just for the fourth quarter but also maybe for 2015.

Chris, among the LTL carriers, I think Old Dominion has a very competitive, if not on the high end of wages and benefits, and you know, and compared with the truckload industry we are significantly higher from that industry.

So our wage inflation is going to be roughly what we have granted this year, which is about an average raise is about 3.5% or so.

So it is not a significant (inaudible) in terms of cost for our industry.

Where we see the biggest amount of wage inflation in the truckload industry.

Okay, that's helpful color, I appreciate it.

And just a quick follow-up sort of looking at the line items on the expense side, just curious, it looks like miscellaneous expense kind of jumped up a little bit higher than our number.

I know it's a small point but I'm curious what your thoughts were there.

Is it a little more isolated to the third quarter if that's maybe a way to think about things going forward?

Yes, I guess we did have a few things.

We had some suits -- lawsuits that were settled during the quarter that went into that number.

Another thing is that we include some of our modernization cost, consultants that are in that number, so those two of the costs that are predominately making that up increase.

Could you give us a rough sense of maybe what the lawsuit piece of that was, or what the ongoing piece might be for the modernization?

We would prefer not to get into any details of that.

In terms of our Company it's fairly immaterial.

Fair enough, thanks very much I appreciate your time.

Thank you, Chris.

Scott Group with Wolfe Research.

Hey, thanks, good morning, guys.

Good morning.

So I want to follow-up on that tonnage question of how sustainable this is and where we can go from here.

Maybe from the perspective, you guys had talked about getting to double-digit market share target over a few years.

Do you think that happens?

Is that in your mind going to happen sooner than you would've thought?

I guess I am asking can you maintain those low teens?

Your upper teens 20% now but do you think low teens is a sustainable run rate for tonnage going forward?

I mean we give that guidance, of course, and so obviously we believe it is.

The time frame we do not give because of other influences of macro et cetera.

But obviously we think we can get into those low teens and, depending on how quickly that is, will depend upon the macro, the industry itself, any particular consolidation.

But we think from our standpoint that we will continue to take appropriate market share going forward.

Okay.

And historically I think we thought higher fuel was a good thing for LTLs from an earnings perspective and lower fuel maybe not so much.

Do you think that thought still applies today?

Well, we manage-- I mean getting back to fuel surcharge as we continuously indicate, we do not depend on fuel surcharge to improve our performance one way or the other.

What we do depend on just efficient in not only how we buy fuel but how we operate our equipment and we are extremely efficient.

So much of our improvement is coming from the efficiency of our fuel strategies and really has nothing directly to do with fuel surcharges.

But right now we are still seeing very good incremental margins and fuel surcharges have been relatively flat.

Yes, okay, all right, thank you guys.

Brad Delco with Stephens.

Good morning guys, thanks for taking my question.

Wes, just wanted to touch base on that wage inflation pressure.

You know when I look at your salaries, wages and benefits in the quarter it was up 19%.

You said you lost a little bit of dock worker productivity.

Your tonnage was up close to 19% but you also said you had about 3.5% inflation.

How do we reconcile that?

I guess, where are you seeing improved productivity or how were you able to keep your salaries, wages and benefits essentially below what you had assumed?

So Brad obviously salary, wages and benefits includes the whole Company including the salaries.

So you know we have lost some productivity on the direct labor side and that would indicate that in our wages.

So most of the improvement in our wage category is coming from the fact that our benefit is in pretty good shape and also the salaries.

Those six salaries we're getting some (inaudible) from the growth in that.

Those two things are causing that wage and salary benefit number to drop.

Got you.

Is there any way you could quantify in dollars what the dock worker productivity loss was?

There is a way, we just don't want to discuss that detail.

Got you.

That makes sense.

Then maybe my last one would you help me back of the envelope this, but the 2000 workers or the 800 and change that you added in the quarter, what is your total dock workforce number and could you give us an idea of what kind a percentage increase you had in network force?

We had about a 23% increase -- we have had about 23% increase in our dock employees since the beginning of the year.

Okay, all right guys, that's it for me.

Thanks for the time.

Rob Salmon with Deutsche Bank.

Good morning, guys.

You know, you have done a lot of thought in terms of entering into ancillary services which add on to the Old Dominion value that you are offering the customers.

And one of your competitors has been talking a little bit about their foray in the last mile in a derivative play on e-commerce.

Could you give us a sense to what extent is the last mile a portion of what Old Dominion does today and how you guys are thinking about capitalizing on the growth of e-commerce longer term?

If we are referring to the last mile as home deliveries it is not a large focus at Old Dominion.

Residential deliveries are probably one of the most costly type of deliveries out there.

So and also if you are talking about you know e-commerce and people buying things over the Internet and taking them to the homes you are talking primarily about small parcel and package and things like that are just not suitable from the LTL truck line, unless you want to make an investment in a whole new fleet of cargo vans and things like that and you want to try to compete with the Postal Service and FedEx and UPS.

So it's not a big focus of ours in the future.

That's good color, David.

You know one of your private LTL competitors is saying that last mile is about 10% of their shipments this year, which frankly it surprised me.

I guess they are using a little bit more on the third party PT for that delivery.

But I guess kind of switching gears, could you give us an update with regards to developments within Washington?

Any sort of thoughts or what you are hearing from your contacts in Washington about potentially getting longer pup trailers, as well as what the -- if there is any change to the hours of service compared to the 1 AM to 5 AM requirement to kind of duel nights off to get the restart and what that would mean if you got it.

Okay I will start with the 33 foot trailers.

I believe we are making some headway.

There is a coalition of the LTL carriers plus American Trucking Association focused on this matter now and yet a big part of it is it is a perception thing.

We clearly believe that 33 foot trailers are safe.

They are certainly fuel efficient.

They offer 18% additional cube, maneuverability is there.

They are not asking for any increase in gross weight limit of 80,000 pounds and we believe we have a good chance of getting that through.

With that said, you know the other key thing is the highway bill and we are really anticipating a long-term highway bill to go to the floors of Congress for approval sometime in the spring because of the current highway bill I believe ends the first of May, or somewhere thereabouts, and so hopefully we will have the language in that bill to include the allowance of 33 foot trailers.

On the issue of the hours of service, the two things we are working on there.

One is looking at the restart provision from our aspect in our Company we think that it does a couple of things; one, it causes us to have to add a couple hundred additional drivers to cover work that drivers and city drivers were performing on the weekends to be able to keep our freight moving through the system.

It is also arranging or getting some extra work because they could restart their clock after an extra weekend trip and go back to work on Monday.

It has reduced the compensation that they are able to make so certain drivers have lost 10% to 15% of their compensation.

And it causes us to have to add additional tractors as well.

So we are certainly wanting to see that provision change.

The other side of it is the rebirth through split (inaudible) provision and there is a distinct difference between single drivers using a restart and team drivers having a split (inaudible).

We run primarily teams across the country that would use that split sleeper both for provision and we want to see it go back to where we can allow drivers to take five hours on and five hours off, five hours on, five hours off, right now they're having to be behind the wheel for 10 hours and the other guys off for 10 hours.

So we have been operating that way for a number of years but it is not the most ideal way.

So hopefully we can push or get these provisions changed back.

Okay, thanks so much for the color and time.

Thomas Kim with Goldman Sachs.

Thanks very much.

Wes, you mentioned earlier in your prepared remarks that you've seen an increase in your contractual base business.

Can you provide a little more color on that, and whether it's contract durations increasing, the overall percentage of growth in your multi year contracts versus the transactional side?

Overall we've seen (inaudible), as we had disclosed, is about 21% and we saw an increase in revenue for contractual business for the quarter up 24%.

So that is obviously, and as you know, Tom, well maybe you don't know, but the weight per shipment for that contractual business is higher than it is for other businesses.

It is almost 1700 pounds compared to (inaudible) business which is only about 1200 pounds.

So, mathematically you can see that is one reason why we have seen an increase in our weight per shipment.

Thanks for that.

And just with regard to the overall pricing.

Obviously this effects talking about dampening the way the head [modules] do look.

Can you give us a sense of what your pricing would look like on an apples to apples basis?

Well you know we don't have an algorithm for pricing specifically but we do kind of look at if the weight per shipment and the length of haul were the same between the quarters, just those two variables being fixed, we recorded at 2.2% increase.

It would've been around 3.2% to 3.5% if those two numbers were the same in both quarters.

So that is just the fact on those two variables but as you know there are many other variables.

And that still does not really indicate price, it just indicates yield and the yield certainly would've been higher had those two metrics been the same in both quarters.

Great, thanks a lot Wes.

Thanks.

Todd Valor with KeyBanc Capital Markets.

Great, thanks, good morning.

David, I was hoping at a high level you could give us a sense of where you would classify the tonnage growth coming from.

I don't want to give you options because I think you'll say yes to all of the above, but is it the PTL channel do you think it's truckload?

If you could give us a sense of where you really think you're seeing the biggest tonnage growth.

The tonnage growth is really coming from all of the above.

(Laughter)

As we look we have nine regions that we look at across the country and we are seeing growth in revenue anywhere from 17% on the low end to 26% on the high end.

And you tend to see a little bit stronger growth across the top half of the country, and the West coast right now is good, and it's a little slower through the Gulf coast region South and mid South regions.

But not appreciably slower.

And we have relatively strong growth in every service center so our tonnage is coming across the board at every single location from a variety of sources.

And to the last caller's question, I mean the increase you're seeing on the contractual side, you know what do you attribute that to?

You know, what is driving that sort of increase this year versus prior years?

Well that contractual is primarily with your largest accounts and I think these largest accounts recognized that OD has depth and breadth of services and coverage and we are able to serve them in so many different ways all with one Company and with top-of-the-line technology and the best in service and the lowest [crime] ratios.

So we make it easy for them to do business with, so we're seeing a lot of larger accounts, just as with any account, they start trying you and they test you there and then they allow you some more business and then they allow you some more business and we are just tending to grow with these larger accounts.

Okay, I guess I just gave you a free commercial on that one.

The follow up that I had was, you know the holiday impact in the fourth quarter this year, how do you think about that from an operational standpoint where the holiday falls, is that positive or a negative from an operations standpoint this year?

The holiday business has pretty much (inaudible) by now in terms of stocking the shelves.

There will be continuous stocking toward the fall but retail for us only comprises about 20% to 25% of our business, so it is not something where we -- years ago it used to be 40% to 45% of our business and it caused quite a bubble when freight in the fall prior to Christmas.

So we are a lot smoother this day and age with only 20% to 25% retail.

So what we see now in terms of coverage and the growth you're seeing we have retail in their but we do not anticipate any major surge for the rest of the year in that category.

But with the 26th being on a Friday, does that count for a half day for you guys are a full day from a cost standpoint?

Somewhere between a half and a full day.

Okay, that's what I needed.

Thanks for the time this morning.

Thank you.

David Ross with Stifel.

Good morning, gentlemen.

Good morning, David.

So density-based pricing is being rolled out, at least with one of your competitors, as an option for customers.

You know given your use of dimension or view of the freight is that something you are also offering customers?

And any other thoughts you have density-based pricing.

We have had a density-based tariff in place for a number of years, at least 5 or maybe 8 or 10 years, so we have not seen a lot of demand honestly from folks to use it.

More so with our global customers bringing product in and it's density-based pricing coming from a foreign country into the US and they may be able to use our density tariff to price from door to door.

We've had one and it's out there.

We had that tariff [whipped out].

Excellent, thanks.

Thank you.

Thom Albrecht with BB&T.

Hey, guys, really most of my questions have been answered, but while I got you, I want to make sure I heard something right.

The sequential tonnage changes in July, Wes, did you say that was off 0.5%?

0.5% to the positive.

It's typically down that's more than that's typically down 2.5% and this year it was only down 1.1%.

That was July from June.

Right.

Okay.

All right and then I asked someone else earlier but on the GRI the whole philosophy there, you know Wall Street loves to see these headlines, but I just wonder if it does not undercut your relationships with some small and midsize shippers a little bit pushing them more directly to three PL's.

What is your view on GRIs in that respect?

Well, you know as our cost of doing business continues to rise, we need to take rate increases of GRIs as well as contractual increases.

I think the advanced timing of the GRIs that were announced thus far perhaps is undercutting the relationships a little bit.

It surprised us how soon some of the other carriers have come out with another GRI.

Typically with GRIs tend to get discounted away during the year.

We do not know the antidote whether that's the case this year and they are trying to replenish themselves, the GRIs that were implemented in March or April whenever that was, does that imply that those GRIs were already discounted away.

We don't know.

It seems to me that it would be much wiser to hold onto what you have and of course if you compound the 4% or 5% earlier in the year and 5% now, that's over a 12 month period compounded to 10% or more.

And yes, I think that could have a tendency to hasten their transition to a logistics company and that has been happening for several years.

But for us, when we price a smaller company just like we price larger companies, at least we look at the profitability and base the rates accordingly.

So, we'll do the same with the GLI this year is evaluate the profitability of that as we continue to evaluate it.

If they couldn't hold onto GRIs this year, then other folks have problems but (Laughter) that's my own soapbox.

But let me just expand the whole three PL then.

I think you are very disciplined in how you price to the three PLs but is there a part of that business it is more or less blanket pricing as opposed to really specific to the customers the three PL is representing?

We have very little on a blanket price, our philosophy has always been to look at each individual account at our three PL manages to evaluate that account based on its own merits and our productivity -- I mean the profitability of that specific account.

And the account order comes to us direct then we look at the characteristics and we generate a price based on desired operating ratio.

It's the same thing as if the three PL brings it to us.

We do not differentiate.

Yield management on that specific account.

Okay terrific.

Thank you.

David Campbell with Thompson Davis & Company.

Thanks very much for answering my question.

Such a good quarter.

I just wanted to ask it looks like the market is going to be very strong, the demand will be very strong, tonnage will be up substantially, you have added a lot of employees.

What would happen next year if the tonnage market for whatever reason did not increase as much as your [bullies] were up, would you think that the yields would go down on tonnage?

That is how you would maintain the growth or just what would happen?

Well, we manage our business day by day and week by week and have a real good handle on our labor compared with business levels.

And so if things flatten out we will adjust labor accordingly.

So, you know, I guess that's the answer.

But as we mentioned earlier we have lost some productivity because of the new employees are still learning our systems and our processes and our methodologies and we anticipate getting some improvement in productivity going forward.

So, if tonnage did not increase we should have an improvement in productivity because if we do not add people.

The people that we have in six or nine months will become more and more and more productive.

Okay, thanks.

The second question is how is your expedited business in the third quarter and [cartage] business?

The extra value in the cartage has done just fine.

Is that growing as fast as the rest of the business?

Yes.

Okay, thank you very much.

Ben Hartford with Robert W Baird.

Good morning, guys.

I'm just wondering as you've gone through 2014 tonnage growth and the LTL business has accelerated you've had success penetrating the national accounts.

I'm wondering what effect it does have on the previous question on some of the ancillary businesses that you targeted for growth long term?

Does the opportunity that has developed on the LTL side allow you to reduce some of the emphasis you might have on the non-LTL business and go capture this LTL share opportunity while it is immediately in front of you?

Or as you penetrate some of the national accounts do you find them concerned about capacity and therefore more amenable to broadening the sales effort beyond just LTL?

It's not mutually exclusive, Ben, we can certainly focus our strategy on both at the same time.

As far as capital, as David mentioned earlier, we are one of the few LTL carriers and maybe the only that is actually invested in capacity, at least on the network side.

So we continue to do that going forward because we expect to continue to pay market share and they will need capacity to be able to do that.

And all the reasons we are in fact taking market share is we have invested in capacity and we have the equipment, we have the drivers, and we have the real estate to be able to handle the additional market share and we'll continue to do that.

So the conclusion is the acceleration and LTL volume growth year to date has not changed your focus on developing those non-LTL services?

Not at all.

We focus on all of the call in value-added services alongside of the LTL services and we do find that these larger contractual accounts have some business in all categories.

And that is what they like about us is that we can serve all of the different non-LTL, you know, specialized services while we serve the LTL as well.

You know with one corporate headquarters and one management team.

Okay, that's helpful thank you.

With no further questions I would like to turn the call back to Earl Congdon for additional closing remarks.

As always, we thank you for your participation today if you have questions and thank you for your support of Old Dominion.

If you have any further questions give us a call and we will try to answer them.

Thank you again and good day.

This does conclude today's conference.

Thank you for your participation.