奧多明尼昂貨運 (ODFL) 2016 Q3 法說會逐字稿

Good morning and welcome to the third-quarter 2016 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 7 by dialing 719-457-0820. The replay passcode is 2072815. The replay may also be accessed through November 27 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 are 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 a result of new information, future events, or otherwise.

(Operator Instructions)

At this time for opening remarks, I'd like to turn the conference over to the Company's Executive Chairman Mr. Earl Congdon. Please go ahead, sir.

Good morning. Thank you for joining us today for our third-quarter conference call. With me this morning are David Congdon, Old Dominion's Vice Chairman and CEO and Adam Satterfield, our CFO. After some brief remarks, we'll be glad to take your questions.

We are pleased with the improvements in our overall results for the third quarter. Although the environment remains challenging, we produced new Company records for quarterly revenue, net income, and earnings per share. In addition, our 82.4% operating ratio was just 30 basis points short of our best third-quarter OR ever in the third quarter of last year.

To achieve these results in a quarter in which total tons declined for the second consecutive quarter and shipments declined for the first time in seven years, it is a real tribute to the hard work, innovation, and flexibility of our OD family of employees, but also highlights the Company's long-term operating strengths, which begins and ends with our commitment to providing superior customer service at a fair price.

We have also maintained a steady investment in capacity and technology, while most importantly, continuing to invest in our people. Which includes providing the tools and training for them to be successful on the job as well as the 3% wage increase that we awarded to our employees in September.

I've experienced a fair share of challenging operating environments and have learned the importance of remembering that the economy will eventually get better. As a result, we're a Company that focuses on the long-term.

We have built Old Dominion with core operating philosophies that drive long-term success and we are fortunate to have the financial strength to implement these customer-focused strategies throughout the economic cycle. Since our model has consistently outperformed our peers in both good and bad environments, we continue to keep focused on executing our strategic plan and remain confident that we can increase our long-term market share, profitability, and shareholder value.

Thanks for joining us this morning. Now here is David Congdon to give you more details on the quarter.

Thanks Earl, and good morning, everyone. As Earl mentioned, we did see slight improvement in our financial results for the third quarter and have several reasons to be encouraged as we enter the fourth quarter.

To start off with, we continued to deliver superior service that our customers value with over 99% on-time deliveries and a cargo claim ratio of 0.28% in the third quarter. Our revenue increased slightly for the quarter, primarily due to strong yield performance in a stable pricing environment. In addition, the headwinds that we faced in the first half of the year from declining fuel surcharges and non-LTL revenue have moderated.

Our non-LTL revenues declined an average of $9.3 million for both the first and second quarters of 2016 as compared to the respective periods of 2015. The third-quarter decrease was $6.4 million. This year-over-year decline should be further reduced in the fourth-quarter, as we fully cycle through the strategic changes made to our international freight forwarding and container drayage services that began in the second half of 2015.

Our LTL revenue per hundredweight, excluding the fuel surcharge, increased 2.7% for both the second and third quarter. The increase in the third quarter felt stronger to us however, as the 0.5% increase in weight per shipment and the 0.2% percent decrease in average length of haul, both put downward pressure on this yield metric. We also saw good productivity improvement on the platform, as pounds per hour increased 5.9% and shipments per hour increased 4.7%.

[E&D] metrics were flat for the third quarter and the line haul latent load average decline 1.4% as we continued to run schedules to meet customer service expectation. While we are operating at very efficient levels, we have an opportunity to improve productivity in future periods, especially as our LTL weight per shipment increases.

Offsetting these improvements we had a 1.3% decline in LTL tons for the quarter following a slight decline in the second quarter. We believe the decline in LTL volume continues to be more a function of soft economic environment than anything else. The decline in volume caused us to lose freight density which contributed to the increase in our operating ratio for the quarter, despite otherwise excellent controls over our variable costs.

As I've said many times, long-term profitable growth requires four key ingredients. Improvement in density, yield, and productivity, all within a positive economic environment. While we can't control the economy, we will continue to focus on the disciplined execution of our strategic plan to provide the best service at a fair price. We will continue to invest in capacity, technology, and people and we will continue to focus on further controlling our costs.

Taking care of our customers and employees, our long-term experience shows that we are best positioned to keep the promises we make to our customers and reinforce those that they make to their customers every day. We also know from experience, that the consistent execution of our strategic plan should help us win additional market share leading to long-term profitable growth and increase shareholder value. Thanks for joining us today and now Adam will review our financial results for the third quarter in greater detail.

Thank you David, and good morning. Old Dominion's revenue was a Company record $782.6 million for the third quarter of 2016, which is a 0.4% increase from last year. Our operating ratio was 82.4%, which was a 30 basis point increase over the third quarter of 2015.

Earnings per diluted share were $1.03, which was a 4% increase from the $0.99 of earnings per share in the third quarter of last year. The increase in revenue for the third quarter reflects increased LTL revenue that was partially offset by the $6.4 million decrease in non-LTL revenue. LTL revenue per hundredweight increased 2.5% for the quarter and increased 2.7% when excluding fuel surcharges as the pricing environment has remained stable. We implemented our general rate increase on tariff business effective September 26 and will continue to target rate increases on our contractual accounts to average between 3% to 4% to offset our own cost inflation.

LTL tons per day decreased 1.3% as compared to the third quarter of 2015, as our LTL shipments per day decreased 1.8%. The first such decrease since the fourth-quarter of 2009, while our LTL weight per shipment increased 0.5%, the first increase since the fourth quarter of 2014. On a sequential basis, our LTL tons per day for the third quarter increased 1.2% as compared to the second quarter of 2016. This was slightly below our ten-year average sequential trend which is a 1.9% increase.

Month to date for October, our LTL revenue per day has increased slightly on a year-over-year basis as we continue to see good yield performance. This was offset by a 1.8% decrease in LTL tons per day, however.

Our operating ratio for the third quarter of 2016, increased 30 basis points as compared to the third quarter of 2015. As we have discussed the past couple of quarters, the increase in our operating ratio was primarily caused by the deleveraging effect on our fixed costs resulting from the flatness in our revenue. In particular, depreciation and amortization costs increased 90 basis points as a percent of revenue in the third quarter. These costs are the result of the long-term investments we have made in real estate, equipment, and information technology.

On the positive side, we were once again pleased with the improvement in our variable operating costs as a percent of revenue. While these costs improved in the aggregate, our salaries, wages, and benefits did increase for the third quarter primarily due to increased fringe benefit costs and general wage inflation as the average number of our full-time employees decreased 1.4% for the quarter. As anticipated, our fringe benefit cost increased to 34.4% of salaries and wages from 32.0% for the third quarter of 2015 and we expect these costs to remain elevated again in the fourth quarter.

Old Dominion's cash flows from operations totaled $117.9 million for the third quarter and $410.1 million for the first nine months of 2016. Capital expenditures were $55.6 million for the quarter and $351.1 million for the first nine months of 2016, which is approximately 87% of the $405 million estimate for the year. We've repurchased $34.3 million of our common stock during the third quarter and $119 million for the first time months of 2016. These purchases left us with $211.3 million available for purchase under our current $250 million repurchase program.

Our effective tax rate for the third quarter was 37.2% compared to 38.4% for the third quarter of last year due to certain discrete tax adjustments. We expect the effective tax rate to be 38.4% again in the fourth quarter.

This concludes our prepared remarks this morning. Operator we will be happy to open the floor for questions at this time.

(Operator Instructions)

We have a question from Jason Seidl.

Good morning.

Quick question about the weight per shipment. I think it's a good sign right that we've seen it pick up for the first time since the fourth quarter of 2004, but I think in Earl's comments he mentioned that we're still seeing a very challenging market. Is it challenging but getting slightly better? I'm trying to figure out why the weight per shipment would have ticked up. Because your one other competitor that reported thus far, had good results but their weight per shipment trended down again, as well.

Sequentially it's staying about the same; it's just that we're finally lapping over a period last year where, if you recall, it was coming down throughout the year and then stabilized in the back half of the year. So the weight per shipment in the third quarter was 1,551 pounds. In the second-quarter of this year it was 1,559. We've seen it stabilize around this 1,550 range and it's been plus or minus 10 pounds, but it did drop a little bit in August and then came back in September and it's trending well in October thus far, as well. I think we still continue to see the economy as stable with prior periods not really improving, not really getting worse. But we're at least happy to see that the weight per shipment has stabilized.

Thanks. I appreciate the commentary.

My follow up is going to be around the new overtime law that's coming into effect here. What kind of an impact might that have on your business, if any?

The total number is not a big deal for us. I think we had somewhere in the neighborhood of 150, maybe, affected people.

Okay. Fantastic. I appreciate the time as always.

Our next question is from Scott Group.

Thanks. Good morning.

Adam, just on the October tonnage, do you have the sequential change versus the 10-year history on that?

Yes, in October or September?

I guess both.

In September, we were up 3.6% over August, versus a 10-year average of up 2.8%; but recall that August was below trend. And then thus far in October, on a weight-per-day basis we are trending down about 4.5%. That's compared to the 10-year average of down 3.5%. So it's back to this choppiness and our volumes are a little bit lighter in October than perhaps what we thought we might see, but our yield performance is good, and as I mentioned, the revenue per day October this year versus last year is better.

Scott, I'd like to add. This is David.

A little commentary on our sequential averages, our 10-year in particular. You might recall that in the early 2000s, we were expanding geography year after year. Our last acquisition was in Montana in 2008, so we've got some geographic expansion in our 10-year history. Then you might also consider YRC in 2007, 2008, I believe had about $10 billion in sales and they went to $5 billion or less in sales and even as the economy has come back they have not, and overall tonnage in LTL has come back. They didn't get that freight back, so what freight they lost I think has probably shifted around amongst the various carriers. But right now we don't have the effect of a $5 billion worth of YRC revenue hitting the market right now because they are stable.

So when we talk about our sequential trends versus a 10-year average, it's a tough comparison.

That actually makes a lot of sense. I guess to follow-up on that point, David, is it fair, then, to think that the pace of share gains going forward realistically is just not going to be the same as what we saw in the past, if you're not expanding geographies and YRC shares more stable?

We will continue to expand geographies to -- well, we're in the 48 states. But we have a plan for 35 for 40 more service centers which will help us increase our density and share of the outbound freight in the markets where we will be putting service centers. So we've got that ahead of us. And the fact that we continue to invest in future capacity for growth and we have the capacity for growth and we have had the capacity for growth over the last decade, we think that, that strategy will allow us to keep winning market share.

In this soft economy, our rate of gain of market share has gone down, because frankly shippers are economizing. Of all the 90,000 active shippers we have every month, probably 95% of them have the other LTL carriers in their stable as well, with pricing that might be cheaper than ours; and perhaps they're choosing to ship for certain shipments for a lower price. But we believe we're the best-positioned carrier as the economy turns around with the most capacity to absorb the growth.

Okay. Makes sense. If I could just ask one last one.

We typically think about higher fuel as a positive for your and broader LTL earnings. Does that start to play out in the fourth quarter? Is there anything to keep in mind that might not be the case right now?

Fuel prices are certainly moving north. We still, in terms of where prices are today, the average DOE price was $2.50 in the fourth quarter of last year. We're starting to approach that number, the last couple of weeks. But we're still even or slightly below what the average price was last year, but certainly it helps leverage all of our other fixed costs if revenues are increasing. And we saw a little bit of that play out in the third quarter. As prices started to rise it helped the top line and we didn't have as much of a headwind on the top-line basis from the decrease in fuel that we had seen the past few quarters.

Makes sense. Thank you.

We'll move next to Chris Wetherbee.

I wanted to get a sense, I apologize if I missed it, but did you give September tonnage on a year-over-year basis? I want to make sure I caught that.

On a year-over-year basis it was down 1.2%.

Okay. That's helpful.

When you think about the dynamic of September versus October, is it indicative of bouncing along a bottom or trough in terms of the tonnage dynamic? I want to get a sense -- I want to overplay month-to-month comparisons, but I wanted to get a sense with what's going on with weight per shipment if you do feel like there is anything different or changed? And if customers are giving you any indication to that respect?

I don't think so. Last October was a little bit of an odd month for us. Our weight per shipment dipped down. The weight per shipment in October last year was only 1,529 pounds. It came back stronger in November and December. But things feel normal; we do have one less workday in this October than last year and sometimes that can cause some slight change with the metrics. But things feel about the same to us and we certainly were pleased with the way September closed out.

We felt good about those trends, but when you look through the economic numbers, whether it's industrial, production, or whatever, we've had some months of up and down and I think that's what we're seeing in our volume trends. Our yield continues to perform very well and so our revenue per day is hanging in there pretty good.

That make sense. That was what I wanted to follow up on.

It seems like you might have had some headwinds to the reported yield number despite that you had flattish on a sequential basis. When you think going forward, can you maintain the pricing dynamic that we're seeing, revenue per hundredweight ex-fuel? Is that a good type of dynamic? You'd talked about renewals in the 3% to 4% range but would like to a sense of, if you see that trending out over the next couple of quarters?

We certainly are going to stick to our guns and our price and philosophies that have worked for us in the past. And when you look at it, the absolute revenue per hundredweight number ex-fuel was higher in the third quarter than it was in the second. We continue to deliver a value proposition we think, and are going to continue to deliver the very best service and ask for a fair price in return that allows us to continue to make the investments in our Company. We see things as fairly stable in the market, and we'll continue to target increases that we need to offset our cost inflation.

Great. That's helpful. Thanks for the time, I appreciate it.

Our next question comes from Allison Landry.

This is Danny Schuster on for Allison.

I was wondering if you could share with us your updated 10-year average sequential trends for November and December?

Sure the 10-year average in November is a 3.2% increase. And the 10-year average for December is a 9.2% decrease.

Okay; and based on your previous commentary with respect to YRC and geographic expansion not being in there, should we expect sequential trends to be a little bit light of those trends? Or were you just making that comment in reference to the October trends?

I think that was just a general comment. Those are obviously based in the numbers. This year our volume trends have been lower than what the 10-year average, when you just look at on a quarterly basis, and I think a lot of that is a reflection of the economy. But for the third quarter you certainly have your normal seasonality play out, and from a weight per day standpoint, we were up 1.2% over the second quarter. And as I mentioned, from a quarterly standpoint, that average was at 1.9%.

Fortunately, getting back to the yield, from an overall revenue per day standpoint, the 10-year average increase in revenue per day over the second quarter is 3.3% and that's where we were for the quarter. So we had a little bit softer volume performance than longer-term trends, but our yield performance was a little bit better. So our revenue per day was right in line with our long-term average seasonality trends.

That makes sense, thank you.

And then for modeling purposes would you mind sharing the quarterly workdays for 2017?

Yes. For 2017, we do have one less workday overall. There will be 64 days in the first quarter. 64 days in the second quarter. 63 days in the third quarter, which we had 64 this year. And then 62 days in the fourth quarter of 2017.

Okay. Great. Thank you so much.

Our next question is from Ravi Shanker.

Are you surprised to see the pricing stability at the levels you're seeing right now? And does that bode well for bigger GRIs as the marker improves?

We haven't been surprised. We've talked all year that we thought that LTL pricing would remain stable for a few key reasons. And it's the consolidation of the market; and then when you look at where average industry margins are and where capacity is, we felt like those three scenarios would be supportive of better LTL pricing.

Truckload pricing has obviously suffered a little bit this year and there may have been some volume swap from LTL in the truckload for that very reason on some of the higher-weighted LTL shipments. But we felt like the industry needed to continue to push price because we feel like the other industry participants need to continue; when you look at some of their density metrics, about every carrier has made improvements from a revenue per service center standpoint. But it's the improvement needs to come from the yield that can lead to better margins and a margin that can support reinvestment.

Is there room for upside as the market improves? Or do you think it stabilized at these levels?

It's hard to say. Our pricing philosophy is, we ask for rate increases to really offset what cost inflation and what the profitability on each customer account is. We feel like we can sit across the table and have those conversations and that's what we'll continue to do. We mentioned in our prepared remarks we're going to continue to target contractual increases in that 3% to 4% range that we've been able to get the last couple of years.

Great; and just a last one.

How do we think about CapEx in the longer term, and clearly step down this year? Again is this the right level to think of on an ongoing basis?

Ravi, from an equipment standpoint, we over-fleeted a bit this year for our expected volume. And the economy didn't come through. We're not giving out a CapEx number yet today, but we're looking more at an equipment number that will be for our replacement program. And then if the economy turns and gets better, we could up that number during the year and start adding some equipment for growth. But right now we're just looking at a replacement program and equipment for next year.

Our real estate is still fairly substantial and maybe a little bit more than last year. And technology is off a little bit from 2016, so we do anticipate a lower CapEx but still substantial CapEx when we finalize our numbers and see how the fourth quarter goes and report to you in January and we'll give that number out then.

Great. Thank you.

Our next question is from Matt Brooklier.

A question around the truckload market. We've seen improvement on the truckload side of things, let's call it since June-ish; directionally it's been moderate but there's been some improvement there. Curious to hear if the change in the truckload market, if it's had any impact on your business, whether it be from a volume or price perspective?

Not in any material way. I think that some of that movement just happens on the fringe. I don't know that we or really any of the other LTL carriers have seen any significant movement, because I still think that there's probably oversupply right now in the truckload area.

Adam, do you have the service center count for 3Q?

It was 226 service centers.

226, okay. I appreciate the time.

Our next question comes from Ari Rosa.

First question: I wanted to start on the operating ratio. You mentioned the economy continues to be a bit tepid, but wondering will kind of OR levels you think you might be able to reach if some volume growth returns? There's a decent amount of operating leverage embedded in your business and you're hitting at operating levels that are pretty impressive right now, I think you said close to record, so I wanted to hear your thoughts on what kind of improvements we might see if volume growth returns.

We believe that if the economy will turn and get more positive and we continue improving density, yield, and productivity, that there is more leverage to continue bringing our operating ratio down. How low can it go? We don't give a number on that, but we do believe that there is more margin improvement ahead if we have all four key ingredients and the stars aligned, if you will.

Okay. That's helpful.

Thinking about the competitive dynamics, one of your competitors noted an intention to expand their geographic footprint. Some of your other competitors talking about being aggressive in terms of growth. Wanted to hear your thoughts on what the state of the competitive landscape looks like, and if it's changed versus, say, 12 months ago?

It hasn't exactly changed, because they haven't opened up those service centers up north yet. I know who you're referring to, but I will tell you that I think they've got their work cut out for them. It is a difficult environment and they are up against some extremely strong service competition.

We would be number one in that category of strong service competition, and then you have a couple of other private carriers that are really strong in the East, South markets. If they don't give the service, they're going to have a hard time building the density in the lanes. And if they resort to reducing prices to get density, then the profitability won't be there and they're going to have a tough time with their operating ratio. It's not going to be easy.

That's great color. I appreciate that.

Wanted to understand, you mentioned YRC, some of the challenges that they've experienced over the past several years. Looking forward, where do you see market share gains coming from? Is there a singular source? Or where can market share go from here, I guess? And what would be the source of that growth?

We're continually bringing on new accounts that we've never done business with, and you usually start with a lane or a couple of states maybe for an account. And as you build the relationship and prove yourself, you can then grow into additional states with those accounts.

The accounts that we do business with today, we have a lot of additional market share gains that we can achieve just within our existing account base, as well. It's a matter of serving the customer, building the relationships, giving them the premium service at a fair price. We think that formula, it has worked well for us. We think it will continue to work.

Okay. Terrific. Thanks for the time.

Our next question is from David Ross.

Adam, can you talk about the insurance market right now? We've heard from some other carriers that premiums are going up significantly. But you seem to be holding the line flat on the insurance and claim side. Are you not seeing that? Or is your contract up for renewal later this year? Any comments you have there would be great.

We dealt with that earlier this year, really in the first quarter, and we were right, frankly, on the bleeding edge of when some of those carriers exited the market and had to go out and get replacement coverage. We've got good insurance programs. We've got good safety records. And that helped us find some replacement carriers. And fortunately we didn't have to take too much of a premium increase like maybe some of our competitors did. But that's already baked into -- we go through our insurance renewal process in the first quarter and so we lived through that earlier this year.

Is that an annual process, or a multiyear process?

It's an annual process.

David, anything you're seeing on the regulatory side or floating around DC that's being talked about that concerns you or excites you about the business?

I think we have a pretty good chance of getting the hours of service back to where they ought to be, where we want them with an restricted 34 hour restart. I think we also have a pretty good chance of getting the F4A legislation passed again. That causes for the states not to be able to create their own laws that affect us when we go into this state or that state with our interstate drivers. So I think those of two wins ahead.

I also want to put a plug in for ATA and Chris Speer. I think he's going to do a heck of a good job. He has a heck of a good plan for the leadership of ATA. He's built a super team and I think we have and will have the strongest ATA on Capitol Hill that we've ever had before.

Excellent. Thanks.

Our next question is from Todd Fowler.

Great. Thanks and good morning.

David, can you talk about how much residential or home delivery you're doing? And I'm not talking about home moving but actual delivery to homes probably from a B2C type of environment? And how you view that market either for you or for the LTL space going forward?

It's a very small piece of our customer base, delivering to homes. We do have the capability of delivering to homes because we have liftgate trailers in every single one of our service centers. Not just one, but multiple liftgates. So we can go into the neighborhoods and we do. But it's projected to be a continuing growing market. The key, the problem is going to be when Amazon and others sell it based on free delivery.

It's not free.

There's nothing free about making a home delivery and the numbers have to work out. We have accessorial charges and so forth now for our residential deliveries that work for us, but we certainly can't do it for free.

So it sounds like it the capability that you have but it's not an area that you are aggressively focused on, or at least maybe at the margin or the price point right now?

We talk about a strategically and have for the last several years, but we're not actively focused on it at this point.

Okay. That helps.

Just two expense or cost ones: Adam, is the depreciation run rate here in the third quarter, is that caught up now, given the investment and rolling stock in the first half of the year? Or does that continue to move up? The second one, you mentioned the fringe cost being elevated. Could you talk a little bit more about what that's related to? And does that remain into 2017, or is that something from cost-sharing the back half of the year?

First, on the depreciation, there might be a little slight uptick as we go into the fourth quarter. Most of that is in at this point, as we've got primarily the revenue equipment that was delivered through the quarter. But still some of that was coming online late in the quarter. And we've seen we've got some replacement trailers that will be coming in, in the fourth quarter as well. So that will tick up sequentially a little bit. Not that much.

And then on the fringe side, its something that we've struggled with, really it started, it spiked in the fourth quarter of last year. And it's related primarily -- there's a lot of movement in those categories, but it's primarily related to our group health and dental and those have been in an unfavorable position for us really going back to again the fourth quarter. So it's something we're looking at. I would expect them to continue into the fourth quarter, and if you recall, last quarter it was better, but that was really on some retirement benefit plan costs tied to our stock price. So the health should or likely will continue.

Whether or not it continues into 2017 is a question. We're focused on it. We're meeting internally and talking about ways that we can make changes to our programs and put preventative measures in place to help our people get healthier. Really, the increase has been driven, it's not by severity, it's just been the frequency of claims filed this year. So it's something we've just got to stay after and try to see some improvement.

Okay. All of that makes sense. I appreciate the time this morning.

Our next question is from Ben Hartford.

Adam, wondering if you can give an update on the ongoing IT initiative that you have?

Sure. We continue to work at it and obviously it's a big, multiyear effort. I think that we've got some little pieces and applications that have gone live and are performing well. A lot of the upfront work in these first couple of years was really building out a new data center, getting the new boxes in place, and really setting the platform up to start converting our system. We're getting into the meat of this thing, where more applications, the coding is done.

And we're turning them live and pilot programs, but we're certainly going slow with it. I think that it could be detrimental and we've had competitors to put systems in, whether it's a billing system or whatever, to their detriment. So we're going about it in a slow and methodical way and hopefully driving some improvement as we turn any of these applications live.

Okay. Good.

Did you disclose the percent of your shipments handled through third-party brokers this quarter? If not, could you give that number? And then any plans to meaningfully change that number over the next 12 months?

It continues to trend at around 35%, somewhere in that ballpark, and it has increased over time. And it likely will continue to increase as more and more business continues to be handled by the third-party logistics carriers and as they're using their TMS systems and so forth and trying to add value to customer supply chains. We obviously would like to have those customer relationships direct, so it's not anything that we're targeting. But certainly those strategic third-party logistics companies that we have good relationships with, we'll continue to build on those relationships. And that can be a source of market share for us. If they're bringing freight to us that is being handled by another carrier; if they go out and are selling our value proposition on our behalf, then that can be an area of growth for us.

Okay. That's great. Thank you.

We have a question from Tyler Brown.

I just want to go back to the TL, LTL dynamic here. David, I appreciate this is a bit of an odd question, but do you track something like a nose load percentage? And are you seeing that percentage fall maybe indicating that some of those bigger loads are making their way into TL? I guess at a high level are you seeing anything funny in that 10,000 pound market?

Honestly we don't track a nose load or head load percentage. I've never seen a number on that one.

Is there anything, though, funny in that 10,000 pound market?

No, and I think our weight per shipment is staying sort of the same. We saw a little bit of that and going back all the way to 2014, where we saw some increases in some of those really heavy weight LTL shipments that we were handling. But right now, when we look at less than 10,000-pound shipments or 10,000 and greater, and those are very few that are in that greater than 10,000. Probably a lot of that is, it's easy to find supply. A truckload carrier that will deliver it at a much lower rate per mile than what we would.

Typically when a customer has a 9,000 or 10,000 pound shipment available they go out and shop it. That would show up in our spot quote systems and spot quotes and that kind of thing. Because I think the average weight of our spot quotes was 9,000 pounds the last time I saw it.

That's very interesting.

I'm just curious about the comments about adding more service centers. You are running, let's call it, 99% on-time. It indicates that your P&D service is already really good. So I'm curious why would adding more service centers really help with saturation in any given market? My guess is that adding those centers would help lower your pedal times, but would that be more of a cost benefit than a revenue driver? Or how should we think about that?

It's both. Especially in large markets like Atlanta, Georgia, or Chicago, or New York Metro. Even the Dallas-Fort Worth Metroplex or even in Houston. Big markets love -- Southern California. When we first started in those markets, we had one service center. And it grew into as much as we could and we had a lot of the P&D cost was really high. We had a lot of what we call windshield time that the drivers were having to drive out and pedal freight and then come back and the cost of that was fairly high.

And what we have found is that our market share on outbound from outlying markets was not as good as it is close to the service center. So when we open up service centers in those large markets, multiple centers, we get closer to the customers and we can increase our share of the outbound from those markets.

All right. Perfect. Thank you.

There are no further questions at this time. I'd be happy to return the call to Mr. Earl Congdon for any concluding remarks.

Fellows, as always thank you very much for your participation. We appreciate your questions, your support of OD, and please feel free to give us a call if you have any further questions. Thanks again and good day.

This does conclude today's conference. You may now disconnect your lines and, everyone, have a great day.