FWRD - NASDAQ

Scott Group - Wolfe Research Bascome Majors - Susquehanna Stephanie Moore - Jefferies Andrew Cox - Stifel Christopher Kuhn - the Benchmark Company

Thank you for joining Forward Air Corporation’s Second Quarter 2023 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 section of Forward Air’s website at www.forwardaircorp.com. With us this morning our CEO Thomas Schmitt; and CFO, Rebecca Garbrick. By now, you should have received the press release announcing our second quarter 2023 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after the market close. Please be aware that certain statements in the company’s earnings press release announcement and on this conference call are forward-looking statements within the meaning of the Private Securities Legislation Reform Act of 1995, including statements, which are based on expectations, intentions and projections regarding the company’s future performance, anticipated events or trends and other matters that are not historical facts, including regarding our expected third quarter 2023 and fiscal year 2023. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such 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. During the call, there may also be a discussion of financial metrics that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued which is available in the Investors tab of our website. And now I’ll turn the call over to Thomas Schmitt, CEO of Forward Air.

Thank you, John, and good morning to all of you on the call. Let me lead off with five points before opening it up for questions and comments. The first point, we just finished the third disappointing quarter in a row. It’s been a very tricky freight recession for our team and our customers, and it came in phases. We have seen the worse in our main show the LTL business in the fourth quarter of last year and also in the first quarter of this year. Truckload and brokerage, as often in a freight possession has had a prolonged demand and pricing low. And as we started coming out of the low for the LTL business in the second quarter, our Intermodal drayage business saw its bottom. For both its core revenue but also for its accessorial services, especially the storage fees. The second point I want to make upfront is grow Forward is working. That’s our initiative that’s focusing us on high-value freight, priced appropriately in a very, very clean, best-in-industry operating environment and made accessible increasingly to our larger customer base. As I said on the last call, it’s working, and we won’t see the full results in 2023 yet. Our industry-leading best service from best on-time performance, 99% to lowest damages, claim ratio of 0.1%. It matters when you deal with shipments of consequence. And still, as we saw in a freight recession, customers do trade down. We saw that with our year-over-year tonnage, if you go back all the way to the last quarter of last year and the very beginning of this year, our tonnage per day was down 15%. For the full first quarter, it was down by 12%. Second quarter, we just finished 7% down. Most recently, we’ve seen a lot of kind of close to flat and very, very positive trend this week. So far, we are seeing plus 7% year-over-year tonnage. The freight mix also keeps getting better as well with the weight per piece and the weight per shipment going up. The third point I want to make upfront, the Yellow impact will accelerate the momentum. And at this point, I do have to start with just a personal note, as I know quite a few people who actually worked at this iconic company, Yellow. I do feel for the thousands who gave their all for so many years, 99 years, I think, in total, at this iconic company. And I truly hope and wish that many of those great professionals will find another great professional home soon. On a pure business front, capacity leaving the market will further cement pricing discipline in our industry. And we clearly will be part of a very disciplined pricing group. We also should see some volume benefits in the more dense lanes and for shipments that benefit from our industry-leading precision execution. This week’s plus 7% year-over-year tonnage is a good observation of that. Fourth point I want to make upfront and this is more to myself. I do need to get better in forecasting in dynamic challenging times like we’re in. And we need to get back to be more conservative and then beat expectations. In that spirit, we are still cautious when we guide towards Q3. Intermodal and truckload will still have ways to go to get back into full swing. There is LTL momentum, it’s building, but we still want to be cautious about the size of that momentum, import volumes for many of our business partners and customers are still very subdued. And then finally, before we open it up, point number five, I wanted to just give you a little bit of a perspective. Sometimes it’s important and right to be self-critical. At the same time, it’s also important to have some perspective. Let’s put this year 2023, arguably the worst freight year in 15 years into a bit of context. 2021, just 2 years ago was the first of two unprecedented freight boom years. And at the time, when we finished 2021, we actually finished with by far our best earnings per share in the history of our company at the time. That was 2 years ago. In an absolute freight past year 2023, we still easily expect to beat that 2021 boom year EPS number. That means we’re not where we will be yet, but it just means a bit of perspective sometimes helps too. And with that, back over to you, John, and we’re going to open it up for thoughts, comments and questions.

Okay. Good morning, Tom, good morning Rebecca, thank you for taking my questions.

Good morning Jack.

So I guess, you know Tom, I’d like to maybe start with what you’ve been seeing over the last few weeks. It sounds like it’s obviously a pretty dynamic situation right now. So when you think about the tonnage trends you’re seeing, the shipment trends you’re seeing in the expedited LTL business. Could you maybe give us a little bit more granularity on the last few weeks, what’s sort of going on there in terms of the progression? And where is that freight coming from? Is it coming from direct shippers? Is it coming from 3PLs? If you could maybe provide some context around that?

Yes, Jack, absolutely. So, and I’ll go into July, and then we’re obviously going to go into the first few days of August. First of all, the numbers and then a little bit of color behind the numbers. Put the first week of July aside for a second. That was a goofy week when July 4 is a Tuesday by all practical means you’re actually losing two business days that week. Now when you go into the second week of July, what we’ve seen is in the second quarter of all was minus 7% year-over-year. The remainder after the first week of July, I think, averaged out roughly at minus 3%. So that trend already was going upward. And then again, the last several days was a whole another step up, which we haven’t fully built into our forecast. This is the plus 7% year-over-year tonnage, which is unusual. Also week-over-week, we see sequentially kind of plus 4%, plus 5% in the last few weeks. So there’s a lot of kind of momentum building. The second question is like where is it coming from? Some of it is truly our sales team doing a phenomenal job with our core business partners, helping them and helping us grow again, giving them just great ammunition in their toolkits. Some of our long-standing business partners and customers have been growing with us even predating some of the Yellow impact. But very clearly, over the last several days going into the last week of July, we do see some of our core business partners and customers who also were Yellow customers for long lanes for some of the more sensitive freight, switching that business over to us. So yes, the Yellow leaving the market, realizing further accentuate pricing discipline, it probably will help some of the class trade companies that are first class in volume directly more than it helps us. But we have seen 3PLs to your point Jack. We also have seen some of the domestic Forwarders that are more focused on the type of freight that Yellow actually was a good carrier for. We see some of them growing with us in the most recent days. And that clearly is them ending over business that they so far gave to Yellow to us. So we are a direct beneficiary volume-wise, less so than some of the class rate companies, but we are direct beneficiary. And certainly, on the pricing front, we expect, as I said, the pricing discipline to accentuate, July 2nd have kind of minus 3, August so far, plus 7 year-over-year tonnage.

Okay. And then maybe just following up on July briefly. But I mean for July in total, what was tonnage in July in total on a year-over-year basis?

I think it was down minus 5. And I think the problem, again, was the first week, which was very goofy to rest gets better.

Okay. July was minus 5, and then it’s obviously gotten better over the last few weeks.

Correct.

And then I guess maybe shifting gears to the pricing side. I mean if we look at revenue per hundredweight [ph] excluding fuel, there’s been some downward pressure on that over the last couple of quarters. How do you think that is impacted by what we’re seeing from like the broader dislocation in the LTL market? Do you feel like you’ve got some pricing leverage back here? Would you expect to see some sequential improvement in revenue per hundredweight excluding fuel?

I do believe that the last quarter the last and the last two quarters that you’re looking at we’re probably the most challenged from a pricing environment, and we should see improvement there in Q3.

Do you think there’s the opportunity for GRI later this year?

Well, so let me say it in two ways, the answer is we do GRIs once a year. We do it in the first week of February. And I think our customers and business partners should rely on that. They don’t like it when it comes, but there should be predictability that they can build into their budget and forecast for the following year. Now here is what we did do, as we talked about, I mean, times got really, really tough over the last 6, 9 months. We worked with many of our customers. And when they step forward with real initiatives to grow together with us, we gave them temporary GRI relief where they didn’t have to pay the full amount. We always talked about Jack about capture rates. Capture rates were never 100%. This year, it was lower than in the previous couple of years. So what I do expect us to do is this, have conversations with some of those customers about, yes, we worked together over the last 6 to 9 months, giving you a temporary relief on the GRI. That needs to kind of come back to a more fulsome level. So it is more the enforcement of the existing GRI at full level versus getting out of sequence or out of cycle, our customers to do deserve some reliability and planning predictability, and we don’t do two or three GRIs a year.

That makes sense, Tom. And so I guess other opportunities will be APSoil [ph] and then the degree to which you’re going through negotiations with customers is on normal course of business in the back half of the [Technical Difficulty] So I mean do you feel like that when you put all that together, that could have a positive impact on pricing sequentially in the third quarter?

Absolutely. And again, I think the point that I made in my opening remarks about guidance for Q3. Some of the [indiscernible] what we just saw in the last few days is not fully built in. Some of that pricing discipline positive outcome may not be fully baked in. I do want to get us back on track to a point where we are and you’ve been fairly vocal about is rightfully so, where we are more consistent in terms of making forecasts and beating forecast. And so that’s why I believe we’re appropriately cautious at this point, but we like what we see.

Okay. Got it. Maybe last question and I’ll hand it over. Could you maybe talk about peak season? What are your customers telling you about their plans for the back half of the year? Maybe are you beginning to see if you kind of strip away the impact from Yellow, it may be hard to do that. Are you beginning to see some signs that there’s a little bit of improvement in underlying demand? Or is it just too early to think?

It’s quite too early to make that call. There’s quite a few of our customers who said, like, yes, they’ve seen their order books getting forward. But there’s also some customers to be very blunt about it, where they say we don’t see a peak this year. There’s no indication of that coming. In my mind, we need to focus on what many people call self-help, why let’s control what we control, which is working with our customers to earn more of their business. I oftentimes talk about a slice of pie game and the size of the pie is not growing If there is more of an uplift in the third and fourth quarter, that will be additional benefit on top of what we’re looking for and what we’re guiding towards.

Okay, thank you, Tom. Appreciate the time.

Thanks, Jack.

And next to go Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Good morning, guys.

Good morning, Scott.

Can you share what is the tonnage you’re assuming in the third quarter guidance? You said a few times you’re not assuming everything you’ve gotten in the last week. So what is the actual tonnage you’re assuming in the guide?

Yes, Scott. So we are assuming that clean [ph] tonnage would be positive in the third quarter. So we’re expecting that to be year-over-year north of - somewhere north of 5% for Q3.

Okay. So it sounds like you are assuming that you keep it the rest of the way because tonnage was downsize in July?

Yes. We expect August and September to be a bit better. As we look at it from a sequential kind of July, August, September standpoint. So that’s right.

Okay. And then maybe just there’s been a lot of mix changes. Can you just - as the tonnage has spiked, maybe just talk about what’s going on with wafer shipment, what’s going on with length of haul. Obviously, that’s had an impact on some of the revenue numbers. So any color on what’s happening as the tonnage levels are spiking?

Yes. So Scott, weight per shipment has been going up again. We always like it when the number starts with an 8. So £800 is what we have seen most recently. It typically tends to be what has been the traditional kind of true airfreight that goes from one airport to another airport, tends to be lower wage than door-to-door shipments. And we have had quite a bit of success over the last several months with our 3PL shippers and those tend to be door-to-door shipments. So door-to-door shipments going up tends to actually help the weight per shipment, and that’s what we’ve been seeing. The second thing that’s also important is, as we are getting, again, more and more high-value freight, less of the lower wage e-commerce, we also tend to get a typical weight per piece and weight per shipment benefit. So it is a factor of two levers, the first lever is more door-to-door shipments and the second lever is continued improvement of our freight mix.

How about length of haul?

Length of haul, we’re getting longer again, and that’s what we ultimately, based on our operating model, with team drivers, oftentimes going on the long distances. We tend to be extremely competitive when it comes to speed, but also to low damages with the drivers taking turn driving and sleeping and only being on loading process, on unloading process at the end. So we want to actually compete and win on the longer-haul business. Our sales team and our pricing team are very focused on that.

Right. And ultimately, what I think I’m trying to get at is what’s the margin differential between like the legacy airport to airport and maybe some of this more traditional LTL type free?

It’s actually mostly differentiated Scott by customer group. But you’re right, airport to airport on average is still more profitable than door to door. We do have some customer groups still where we —like Events [ph] is a great example from a events divisions of some of our customers. Airlines are a great example where some of it actually goes to an ultimate destination and we actually benefit from that too. But airport to airport still is the jewel in terms of profitability, but we are walking up the door to door business also.

Okay. So do you think that because I assume what you’re winning right now is sort of the door to door LTL type freight. So there could be some degree of a margin mix headwind as we take some of the time. Is that right?

That’s when makes perspective, that’s fair. But again, we always said we go forward in our high-value freight focused with the pricing that’s appropriate that we expect when you put fuel aside positively or negatively that we see margin expansion in our LTL business. You’re correct from a mix perspective, Door to door makes it harder. And still, we expect to see margin expansion once you put fuel aside. So yes, that number should be going on an OR perspective towards 80 or on a margin perspective towards 20%.

Okay. Thank you for the time guys, appreciate it.

Okay. Thanks, Scott.

We’ll go next to Bascome Majors with Susquehanna. Please go ahead.

Tom, you’re certainly not alone in having this year turn out in transportation different than maybe you expected in January or February. But I do think it’s easier for us to understand some of those drivers and some of the businesses that have a lot more public comps and be able to compare your business is unique in the mix and the airport to airport focus in your largest business. I’m just curious if you could back up to kind of how you felt about the year in January or February and how you feel about it now, the one or two most meaningful drivers of that change in outlook? And maybe just let us know how confident you are that those levers are kind of close to a bottom or even getting a little better. And if there are any pieces of that, that may actually have some risk of getting worse or just more uncertain as we look forward, two, three, four quarters? Thank you.

Yeah. Bascome, good morning. And let me just kind of walk you through over time what we saw and how some of that remain consistent and how some of it changed. The first thing I would say is, as we were planning for 2023, we clearly were off the school that I think a lot of people were on some there were skeptics, so which said somehow inventory will be depleted by the end of the second quarter to levels where normal shipment sizes and shipment volumes should start happening again in the second half of 2023. That was the kind of predominant school of thought going into 2023. If you ask me kind of as we went into the second quarter and now certainly where we’re sitting today, I think that was too optimistic. I think those voices that said early on, I think Bascome, I think you were one of them, that this freight recession could be lingering longer, I think, turned out to be more right. So that’s one, I think, expectation to some extent, hope that we shared that second half would kind of start seeing this uptick. And at this point, we are looking at 2023 as a year where, again, we have to win a slice of pie game with our customers because we’re not banking on the size of the pie growing in the second half. The second thing is that we probably were expecting what we saw on the LTL side with the fourth quarter last year being difficult. The first quarter this year being difficult and the second quarter starting kind of to see some uptick with our direct small medium-sized business customers selling in addition to working with our core business partners. But we were somewhat unpleasantly surprised by, I also mentioned in the opening comments, the interval drayage business, which really, really has been a rock solid double-digit margin performer, seeing a similar but slightly time-delayed absolute bottom in the second quarter, specifically in the months of April and May, we didn’t expect it to come down that hard. The assessorial fees we talked about, the new storage fees at some point with the supply chains being unclocked, would be normalizing, but the basic core revenue came down harder than what we expected. So that was another lesson learned for us. We knew truckload and brokerage would be challenging a freight recession, we knew LTL, down trading would be happening temporarily. The intermodal range business, we probably saw more consistent in our forecast than it ended up being specifically in the second quarter. So now looking forward, I do believe the bottom is behind us. I do believe on the LTL side, not only because of the Yellow impact, but certainly also bolstered by the Yellow impact. On the LTL side, there is momentum building quantity and quality of the freight. That go-forward [ph] program is working. On the intermodal side, I do believe we are also with a slight time delay are working our way out of that bottom. Truckload and brokerage, I think, is going to be still sluggish over the next several months. So that’s why I’m saying this year probably will go into the books as kind of a tough freight recession year. But I do believe in every single one of our business lines, we have seen the bottom and the momentum on the LTL side is perhaps the most pronounced of all of them. We don’t talk as much about the Final Mile business, but it’s worthwhile noting the deliberate installation of high-value appliances. That team actually has held up extremely well by winning additional markets with our customers and also by winning additional logos, meaning serving customers that we didn’t use to serve a year or 2 ago. So each business line, I think we have seen the bottom. The momentum in the LTL business is probably the strongest. Final Mile is pretty solid coming along. Truckload brokerage may be the one that’s most challenged. And I think intermodal range [ph] the third quarter will be better than the second quarter.

I really appreciate that comprehensive response, Tom, thank you.

Okay. Thanks, Bascome.

[Operator Instructions] We have now Stephanie Moore from Jefferies. Go ahead please.

Hi, good morning, thank you.

Good morning, Stephanie.

Morning. Maybe just as a follow-up to a prior question, just so I have everything clear. So just for your year 3Q guidance, I appreciate all the color and the puts and takes. So does your guidance assume, just to be clear, normal seasonality, but it does not assume kind of an uptick you have seen thus far from some of the Yellow diversion volumes?

Yes. So Stephanie, it does assume, yes, the seasonality, and it assumes not necessarily the benefit is the Yellow, but it seems with as Tom mentioned, what’s in our control in some of the pipelines that we have, that we’ve won and we’re seeing. So we’re doing things what’s in our own control. And so that’s what we’re baking in. At the time that we prepared the forecast, Yellow really hasn’t been settled at that point in time. So it’s really seasonality plus within our control and what we see in our pipeline.

Got it, that’s helpful. And then maybe just on that, kind of what you’re seeing in your pipeline or what’s in your control. Can you talk a little bit about your customer mix or verticals and where you are seeing some of that good demand and then other areas that might still be a little weak?

Yes. So a lot of the consumer good import businesses, so think of international forwarders still significantly down. I mean when we are down with them, like go back to the first quarter, in some cases, for us to be down in year-over-year tonnage in January and February by 15%. Some of the import-driven business at the time was down by 20%, 25%. When you talk to those same international forwarders today, they still see very, very sluggish imports and also very depressed rate levels coming specifically from Asia when it comes to consumer goods. So we noticed that. We see that. And again, while we are focusing on more high value, more sensitive freight, we call it shipments of consequence, we do have high-end consumer goods as part of it, and that’s still depressed. When you talk about more of the industrial goods space, automotive events, medical, we see very strong demand. We see our customers being kind of focused on initiatives in those spaces. That’s working. So I would say, high-end consumer goods, more sluggish, more kind of robust resilient industrial goods, we see a very, very good demand pattern and frankly, also demand increase.

Okay, that’s helpful. And then maybe more on a housekeeping question, and I apologize if I missed it and you said it, but I think the last quarter, you kind of gave some color on a revenue per ton per mile ex fuel, airport to airport and then door-to-door. Could you give those numbers for this quarter?

So we actually did not give those numbers, but revenue per ton mile is a metric we follow closely. We actually did not publish it. What we most likely Stephanie will be doing is because we are only four weeks away from being two months into this quarter. In the mid-quarter update, we’ll give you the same metrics that we gave last time. We were very focused on them.

Yes. Stephanie, I don’t have it in front of me by a month, but I can say revenue per ton per line haul mile ex fuel for the quarter is up 1.5%.

And that - big fans of that metric because that’s what we get paid for moving a ship and the same amount of distance. Fuel is not part of that. And if that number goes up, that tells us that either the freight mix or our ability to price it appropriately or both is moving in the right direction.

Right, that makes sense. And then maybe lastly for me, just talk a little bit about your appetite for M&A. Maybe in this environment, there might be an opportunity to maybe be opportunistic with some deals, what are your thoughts regarding ongoing M&A? Thank you.

Yes, M&A is always part of our capital allocation and part of our strategy. We always talk about we want to grow in double digits. It’s a combination of organic and M&A. A good example is our intermodal rage business where we always build out geographically and kind of an industry-wide our footprint. We haven’t had a intermodal [ph] acquisition this year. The year is not over yet and we’re always focused on finding out - finding spaces where we get stronger. So I would expect us to have a good chance of seeing something there. On the LTL side, with Land Air Express, we already had a great addition to our team earlier this year. But M&A is a big part of who we are and what we do, and we continue pursuing that.

Appreciate it. Thank you for all the color.

Thanks, Stephanie.

We’ll go back to Jack Atkins with Stephens Inc. Go head please.

Just from the call so far. But when we go back to the comment, Tom, that you made on the GRI capture rate, this year being lower than what you’ve seen in the past. Is there a way to kind of maybe put some framework around that? What portion of the GRI was captured this year? And what’s a reasonable expectation as we kind of look forward over the next maybe quarter or so?

Yes. So typically, our expectation would be that GRI capture rates would be in the 70% or higher space. And by the way, to be very clear, the only way we tend to mitigate is when we have specific initiatives in place for specific customers to grow with us where in exchange for that growth, and that’s profitable growth, we mitigate percentage points of that GRI. That’s what we’ve done historically. We’ve done less of that in ’21 and ’22, and we’ve done much more of that this year. So if you take 75% as kind of a good middle ground, and the other 25% being mitigated for growth purposes. This year, we definitely were way below that 75% in a 2021 or 2022 boom scenario, we were higher than that. Now over the next several weeks and months, we do expect Nancee Ronning, our Chief Commercial Officer, and Melissa Feeser, our Senior VP of Sales and their teams to work with our customers on looking back at the mitigation that we gave them over the last 6 months and to some extent, playing catch up. So I’d like to get closer, perhaps not for the average of the year, but close to that typical expectation that 75% is captured and the rest is mitigated for the right reasons.

Okay. Got it. And then I guess maybe just going back to the tonnage comment because I think that it’s a little bit confusing for folks in terms of if you think about the expectation for the third quarter, July was down 5, but you had the challenging sort of first week just with the calendar. If you kind of think about the back half of the quarter, back two months of the quarter, I guess help us square the revenue guidance, which is, I have to go back and look, it’s down pretty significantly with the idea that tonnage in your largest business is going to be up 5%. It would seem like if ton is up 5%, your revenue wouldn’t be down as much as what you’re guiding to.

Yes. Let me start, and then Rebecca can correct me. But the one thing that we have not talked much about, and I frankly prefer looking at things like apples-to-apples and not letting fuel drive the discussion. In fuel we always go with industry forecasts, and we always tend to take kind of the one or two most respected Energy Institute to kind of forecast and that’s what we built in. The forecast for the third quarter is tremendously low. So it’s actually, I think, around 350 or so is where it’s built. That level of fuel right now is higher than that. If you look at even the gas pump over the last few days, personally, that number has been going up again. So part of what you see on the revenue front for Q3 is us building in what the Energy Institute said, which is a very low fuel number.

Okay. Got it. And then I guess maybe thinking about the margin impact from the incremental tonnage that you’re seeing, I get the mix shift between core expedited business versus door to door business. But as you’re thinking about layering on incremental tonnage that’s heavier weight per shipment on an existing cost structure, the incremental margins, to your point, should be higher than the existing expedited LTL margins that you saw in the second quarter, right? So in theory, as you’re capturing this incremental tonnage, that should drive margin expansion sequentially if it continues. Is that fair?

Absolutely correct. Capacity utilization is a big deal, and that number going up definitely should help us with margin expansion.

Okay, that’s all I had. Thanks again for the time.

Okay. Thanks, Jack.

Next, we’ll go to Andrew Cox with Stifel. Go ahead please.

Hey, good morning, Tom, Rebecca, Andrew on for Bruce.

Good morning, Andrew.

Good morning. Hey, I just wanted to kind of check in on industry service levels. We’ve been hearing reports that missed pickups are starting to accelerate across the industry given the kind of flood of tonnage that has hit the market. Just kind of wanted to know if you guys are seeing that? And if so, what are the things that you guys are focused on to balance the opportunity and maintaining network fluidity at the same time and making sure that you keep the progress you’ve made over the last few years?

Yes. Andrew, very topical question and one in every single QBR, quarterly business review with our customers are focused on. The first thing I should say is this is a big testament to Justin Lindsay, Tim Osborne, Chris Ruble, our Operations Leadership and the entire teams, we do have, by any standard, the best service in the LTL industry in North America. And that industry data, I’m using here, not our own scorecards. We had - and I think we put this in the release, we had a 99% on-time level. And we have very, very few kind of exceptions and exemptions. So these are real numbers. We are not perfect and we strive to get closer to perfection every single day, and we’ll never get there. But we have operating principles that we built over four decades and be honed and sharpened that are really built around handling very, very sensitive freight and basically having airline-type schedules in mind. So we barely missed pickups, and again, we have a claim ratio of 0.1%. But we do hear Andrew a lot what you’re talking about. And frankly, this is a great conversation for us to have with our customers. When they rely on other carriers and they do see some of the symptoms that you are mentioning, we actually love helping our customers when they need for those types of shipments, absolute certainty or closest to absolute certainty. They have the best place to go to in that [indiscernible] So it is something that’s more and more of a topic. It will probably intensify. And frankly, we are on the right side of that topic by being a great choice.

So if I’m hearing correctly, over time, you expect kind of some, that freight will eventually find a home. Some will end up finding the best service home and that it tends to you?

That’s our aspiration. That’s what we’re competing for every single day.

Great. That makes sense. If I can follow up. I know you kind of briefly touched on Final Mile earlier, but I just wanted to talk about pricing in the Final Mile business. We’ve heard one of the larger peers kind of have successfully taken some pricing actions over the last 6 to 9 months. I just wanted to see your opinion of the trends in pricing at Final Mile/

Yes, always going to be competitive, lots of rebids going on. We have to re-earn markets with our existing customers and price is always a key topic. Having said that, we tend to do, and this is what unites across all of our Forward business units. We tend to focus on service excellence. We tend to focus on, again, as we said, shipments of consequence. That’s true for Final Mile too. This is delivering installation in most cases of high-value appliances. So we do try to be extremely cost competitive, but we tend to win on service. And the reason why our Final Mile margins expectation is in the high single digits and not in the low single digit is exactly that value creation and that ability to capture a good part and earn part of that value by being the best in service. As a reminder, again, in 2021, one of the most challenging and in a good way, tough business partners, the Home Depot made us their appliance carrier of the year, and this was definitely earned by the exceptional service that our Final Mile team is providing.

Okay. Great, Tom. Rebecca, thanks so much for the time.

Thanks, Andrew.

And next we’ll go to Christopher Kuhn with the Benchmark Company. Go ahead please.

Yes. Hi, Tom. Hi, Rebecca, good morning.

Hi, Chris.

Sorry to go back on the volume. I just wanted to clarify, Rebecca, the volume guidance, does that include some Yellow in there? I just wanted to be clear on that?

Yes. So it doesn’t. What it includes, right, is just to kind of go back, right, to think about where we are at the beginning of this year, we acquired Land Air. So we got five new terminals. We opened up our Chicago terminal in Q1 of this year. And so we’ve been winning new business through those terminals. And so kind of getting into new markets. And so I think that’s an important point that I want to - want to make is we’re thinking through our pipeline and some of the customer wins and reiterate Tom’s - what Tom has said about kind of winning that bigger slice of the pie. And so when we think about our guidance, we think about Q3, right, we’re seeing some of this momentum that’s coming through. And so we built our forecast based on those new terminals and what we’re seeing there, new slices of the pie that we’re winning. And so that plus seasonality has helped to drive how we think about the forecast for Q3.

Okay. Great. And then just on the intermodal, Tom, I mean, I think you mentioned that you feel like that’s the bottom in 2Q and just the reasons why that might be? Are you expecting import activity to pick up or assessorial charges to be less of a drag?

Yes. So again, if you look at the first half, the intermodal rage business still in the first half was a double-digit margin business. [indiscernible] will be a tall order for this year – for the full year to be a double-digit margin just based on the trend that we saw in the second quarter. But we do, again, and back to Rebecca’s point about pipeline, we do see an increasing pipeline in the Intermodal rage business. So imports are still sluggish, but that team is winning more against slice of pipe, perhaps more than a size of pie business, where we’ve been a bigger share of wallet. But what I see in the activity, the pipeline and using typical close rates makes me more excited about the intermodal rage [ph] business in Q3 compared to Q2. So it is commercial activity by our team, Mike Pendato [ph] and his colleagues specifically driving more revenue upside in Q3 than we saw in Q2. I do believe we have seen the bottom and the bottom is behind us.

Okay. Okay, perfect. Thanks, guys.

Thanks, Chris.

And we have no additional questions in queue at this time.

Well, thank you, John, and thank you to all of you dialing in for the call.