Good morning. And welcome to the Second Quarter 2020 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through August 7th, 2020 by dialing 719-457-0820. The replay passcode is 1718368. The replay of the webcast may also be accessed for 30 days 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 maybe 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 publicly update any forward-looking statements whether as a result of new information, future events or otherwise. As a final note, before we begin today, we welcome your questions. But we ask in fairness to all that you limit yourself to just a couple of questions at a time before returning to the queue.

Thank you for your cooperation. At this time for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead, sir..

Good morning and welcome to our second quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. The OD team delivered solid financial and operating results for the second quarter despite the operating challenges we faced with the economy.

Although, our revenue declined 15.5%, we were pleased to improve our operating ratio to a quarterly record of 77.8%. We accomplished this by focusing on improving our yield, managing our variable cost, and controlling our discretionary spending.

Our yield management process has strengthened the quality of our revenue and profitability over the long term. Through this process, we manage profitability on an account-by-account basis. We believe this approach is consistent and fair for our customers.

Is also supportive of our ongoing investments in capacity and technology while helping offset cost inflation. We believe customers appreciate the consistency of this approach, as they know what to expect from us each year. Providing superior service at a fair price is our value proposition, which is critical to our long-term customer relationships.

Our team is relentless in its commitment to providing the very best levels of service to our customers regardless of the economic environment.

While we contended with many operating challenges in the second quarter, including the 16.6% decrease in shipments per day, we produced a new company quarterly claims ratio of 0.1% while also improving productivity. There are many components of our industry leading service.

And based on customer feedback, we believe the gap between us and our competition has widened in the current environment. It is historically become a common practice in our industry to focus primarily on cost in a recessionary environment.

This narrow focus generally leads customer service failures, which is why we are so committed to the service standards that support our revenue quality.

We have long believed that this creates a competitive advantage for us in our industry and it's especially critical now because the importance of high quality and dependable service seems to have recently increased for many of our customers.

As evidenced to this trend, we have been awarded new business in the past few months from customers that has historically provided lower rates rather than overall value.

This trend not only leads us to believe that many of our competitors are remaining relatively disciplined with their pricing, but it is also encouraging for future market share opportunities. While the quality of our revenue is critical to our operating ratio, appropriately managing our cost is just as import.

Minimizing our cost inflation on a per shipment basis is an ongoing process based largely on the productivity of our employees as salaries, wages and benefits represent our largest expense. As a result of operating efficiencies and improved productivity, we are able to improve our direct cost as a percent of revenue during the second quarter.

The enforcement reality of the sudden significant reduction in revenue that occurred in April 2020 was an adjustment to our workforce to balance our employee count with available work, believing that the economy could recover quickly, we implemented an employee furlough program that initially resulted in a 15.5% year-over-year decrease in our full-time employees in April.

While the economy is still recovering, our volumes increased sequentially in May and June, and we are cautiously optimistic that this accelerating trend can continue. Many of our furloughed employees have been able to return to work as a result of this improvement.

We took various other measures to reduce operating expenses, while also controlling discretionary spending to reduced overhead costs.

In addition, circumstances associated with the COVID-19 environment created certain cost savings that are expected to diminish in future periods, such as a reduction in group health and dental claims travel and customer entertainment. Second quarter of 2020 was one of the most difficult periods I have experienced in my career.

And I am especially proud of our team's ability to respond quickly and manage our operations in this environment. I think the quality of our results shows that our business model works in both good times and bad.

While certain challenges will likely continue until the economy recovers, we believe there will be long-term changes to supply chains that should create opportunities for the LTL industry.

With our industry-leading service, our unmatched long-term investments in service center capacity and the dedication of our OD family of employees, I'm confident that we are in a better position than any other carrier in the industry to respond to increased customer needs for LTL services.

As a result, I am also confident in our ability to continue our long term, are producing profitable growth while increasing shareholder value. Thank you for joining us this morning and now Adam will discuss our quarter financial results in greater detail..

Thank you, Greg, and good morning. Old Dominion's revenue for the second quarter of 2020 was $896.2 million, which was a 15.5% decrease from the prior year. Our operating ratio improved 10 basis points to 77.8%, which contributed to our earnings per diluted share of $1.25 for the quarter.

Our revenue results for the second quarter reflect a 12.1% decrease in LTL tons and a 3.8% decrease in LTL revenue per hundredweight.

Decrease in the average price of diesel fuel reduced our fuel surcharges, which had an impact on our topline revenue as well as our yield, excluding fuel surcharges, LTL revenue per hundredweight decreased 0.5% due primarily to the significant increase in weight per shipment.

Multiple factors can have a significant impact on revenue per hundredweight, most notably being the average length of haul and weight per shipment. Changes in revenue per hundredweight are also not linear with respect to changes in our mix.

As a result, revenue per hundredweight is a tough measure to evaluate, when the mix of our business changes so significantly like it did during the second quarter.

While the change in revenue per hundredweight might suggest otherwise, we continue to negotiate rate increases during the second quarter and believe underlying pricing trends remained relatively consistent.

We believe revenue per shipment is a better measurement, as we focus internally on maintaining a positive spread between our revenue and cost per shipment.

The 4.9% increase in revenue per shipment excluding fuel surcharges, for the second quarter, was relatively consistent with the change in the first quarter of 2020, as well as our long-term trends.

With respect to our revenue trend during the second quarter, revenue per day on a year-over-year basis was down 19.3% in April, but then sequentially improved in the remaining months of the quarter. Average revenue per day in June, for example, was down 11.4% as compared to June 2019. Our change in volumes also followed a similar pattern.

On a sequential basis, LTL shipments per day decreased 15.7% in April as compared to March 2020. Shipments per day then increased 9.7% from April to May and increased 7.1% from May to June. The sequential acceleration and shipments in revenue has continued into July.

With only a couple of days remaining in the month, our current revenue per day is trending down approximately 3% plus or minus. As usual, we will provide the actual revenue related details for July in our second quarter Form 10-Q.

Our operating ratio improved 10 basis points to 77.8%, which was a record for us despite the significant decline in revenue. More than two-thirds of our costs are variable or semi-variable and our team was effective in matching these costs with the change in revenue, while also controlling our discretionary spending.

Our operations team also did an outstanding job with improving efficiencies during the quarter. We have historically improved productivity during recessionary environments and from experience, we believe we can maintain, much of this productivity once we return to a growth environment.

While the loss of revenue certainly had a deleveraging effect on our fixed cost, the improvement in our direct cost as a percent of revenue more than offset the increase in overhead cost as a percent of revenue.

Old Dominion's cash flow from operations totaled $312.2 million and $516.2 million for the second quarter and first six months of 2020 respectively, while capital expenditures were $67.9 million and $120.1 million for the same periods.

We returned $146.1 million of capital to our shareholders during the second quarter and $342.7 million for the first half of the year. For the year-to-date period, this total included $306.8 million of share repurchases and $35.9 million in cash dividends.

Our effective tax rate for the second quarter 2020 was 25.7% as compared to 26.1% in the second quarter of 2019. We currently expect our effective tax rate to be 26.0% for the third quarter 2020. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time..

[Operator Instructions] We'll take our first question from Jack Atkins with Stephens..

So, Adam, if I could maybe start going back to your commentary on the pricing environment for a moment, because I think in your prepared comments you said that the pricing environment remains relatively consistent with what you've been seeing over the past several quarters with regard to the second quarter.

We have heard some anecdotes on public conference calls here over the last couple of days that maybe there's been a little bit of an acceleration in pricing, in the third quarter and I'm just curious if you could maybe talk about - have you noticed a shift in tone around pricing in discussions with your customers over the past several weeks, maybe couple of months?.

I don't know that we've heard a shift in tone at any point recently. Certainly, our approach is always one to consistency and I think that's what our customers appreciate.

They know what to expect out of us and we're pretty disciplined in that respect to focus on what our cost inflation is every year and the pricing, the operating ratio on an account-by-account basis that, that we try to target with our customer accounts as well.

So, for us, we just continue on with our consistent approach and we've been getting increases all year long. I mean, in some cases, in the early part of this quarter, that may have impacted some of our volumes as well.

But like we mentioned earlier, we are starting to see some volumes coming back to us, that's been an encouraging trend, and some of the business that we may have lost back in April. Some of that business coming back to us just based on the service that they received from the other carrier that they might have switched to.

And when they look and think about the total value equation, they didn't feel like they were getting the value there and they came back to us. So that's what we'll continue to focus on is just our consistent long-term type of approach to offset cost inflation that's workforce and that's what we intend to continue..

And then I guess from my follow-up question, just kind of thinking about the operating ratio, here.

I guess normal seasonality 2Q to 3Q, would call for some modest deterioration, but your commentary around revenue trends per day in July would indicate that maybe revenue is trending better sequentially, but there may be - there are some temporary costs that are getting layered back in, now the business is stabilizing.

So Adam, can you maybe help us kind of take me to those puts and takes and how that relates to or progression as we move into the third quarter?.

Yes, it's typically is about a 50 basis point deterioration from the second to the third, but in a normal environment, which clearly we are in, and we would have seen the second quarter revenue of about 10% over the first quarter and then third quarter increase is slightly typically from the second quarter.

So you get, historically speaking, most of your operating ratio improvement there in the second quarter on a sequential basis, that is.

And so, in this environment, if we can keep this accelerating revenue trend, then some of the leverage that we lost particularly in overhead and within that overhead category on the depreciation, we lost quite a few basis points there from the first and the second quarter.

So, if we can continue this revenue trend and revenue can meet or exceed than where we were in the first quarter, then certainly that depreciation in particular unwinds, and there should be some other costs that we unwind along with that.

And we fully expect to try to maintain the productivity that should continue, certainly there will be some costs that will be coming back online in the third quarter.

But given all of those factors, we certainly think that we should definitely be able to beat what that long term deterioration is simply, if nothing else, just the improvement that we should have the leverage on the depreciation..

We'll now take our next question from Todd Fowler with KeyBanc Capital Markets..

Greg in your prepared remarks, when you talked about the quality of revenue and kind of improving that here in this quarter, I would think that, that could maybe a little bit more challenging in a negative tonnage environment and maybe in a stronger tonnage environment where you can pick and choose the freight that you want. It's a little bit easier.

So can you expand on that comment? And essentially what you're focused on and what you're able to do from a quality of revenue standpoint, right now?.

Sure, Todd. No doubt in this deteriorating environment that we just came through. We did see customers more likely to put out bids and rebid the freight and that kind of thing. And that was definitely a challenge for us.

And Adam mentioned, some of that - some of our - we did lose some business in that process, but we gained some from others and fortunately, in other cases, we are gaining back some revenue that we lost earlier, because of they couldn't meet the service standards that they had with us. So it's ever a challenge, that's our business.

And there is always you win some you lose some. But fortunately, at the end of the day, you hope that your service outshines, the value outshines your competitors. So far so good. We are regaining some of the business that we lost. That's a good thing. We've taken on some new additional business of late.

So I think there have been some opportunities that did open up for us as the quarter went all and as we roll into the third quarter, so far in the month of July, it's definitely looking strong..

So, Greg you said in a comment that - yeah - so some of the business that you lost earlier in the quarter, maybe was more some price sensitive business and it didn't fit as well in the network or what is this profitable, and so it's okay to see that go away, but you're starting to see some of that come back now?.

Yes. Coming back at our price. Right..

Got you, okay, that makes sense..

Coming back at our price. We obviously lost it to a lower price, but that doesn't mean the customer got a greater value and it came back because of the value we provide..

Understood. Okay.

And then just for my follow-up; Adam, do you have any color or anything you can share on the increase in the weight per shipment, the up 5% and kind of the level that you're at right now, is that something that you think is sustainable? Do you see that as a shift in the business that you're handling or is that indication of improvement in underlying economic activity? Thanks..

The weight per shipment is certainly been a wild swing since the trend that we had back in January and February, right when things started changing our weight per shipment increased above 1,600 pounds in March, it reached a peak of 1,677 pounds in April and then it started working its way back to sort of a - more of an average that we've seen over the longer term of about 1,600 pounds.

It was right at 1,600 pounds in June. And most of that was in the early stages of some of the stay at home orders. We had more national account business that remained open. Our national account business typically has a higher weight per shipment than our smaller mom-and-pop type of accounts.

And so, now some of those smaller accounts are starting to come back online. But we're still getting, I would say more business from our national accounts. They continue to be strong.

And when you think about some of the companies that are performing well in this environment and that have increased demand, it's a lot of those bigger on the retail side, some of those bigger retailers and their weight per shipment just continues to be much heavier. So it's a little bit different mix.

But we're happy to see it kind of coming back to the 1,600 pound range. And we expect that is more of the smaller accounts come back online. It could drift down a little bit lower, but that 1,600 pound range is continued into the July at this point.

And so, if we can see that stay around that sort of level for the time being, that'd be a good trends and contributor too to the overall revenue per shipment that we're seeing..

Our next question will come from Chris Wetherbee with Citi..

Maybe, Adam, I could hit back on pricing a little bit. Can you give us maybe a little bit more specific sort commentary on where contracts are kind of being reset, as you get through the quarter? I don't know how much activity was actually happening in 2Q, but could you give us just sort of a rough sense.

It sounds like it's been consistent with what you've seen, but kind of curious if there is incremental color you can add?.

We kind of stopped talking about the - our average contract renewals.

And some of that, we hear others kind of give the same commentary and be it average increases in contracts or general increases, never seen the fully reconcile even factoring in changes in weight per shipment to what some of the others might report as their revenue per hundredweight.

And so I would just say that, that looking at revenue per shipment and how that's trended, that's more in line with what we've been able to achieve with increase is kind of on average. And typically that's been between 4% to 5% and that's somewhat falls in alignment as well.

We have a general rate increase that went into effect earlier this year, that was at 4.9%. And that's generally the target that we have for our contracts as well. So, in that ballpark is really what our long-term trend has been. It's what we continue to target. And it's what we've been able to achieve this year. So that it's been a good thing.

Obviously, the long-term success of that program, managing our cost where there is a positive delta between our revenue per shipment and our cost per shipment managing those two factors has really been a key contributor to our long-term operating ratio improvement..

And then maybe when you think about volume opportunities and just sort of how you want to manage your network in the context of a potentially sort of tightening truckload cycle, when we've seen these in the past, there has been spillover into the LTL market.

You guys have always been disciplined about what kind of business you want to take on in those kinds of tight market who maybe not all of it is what you really do want in the network. But I don't know if it's too early to see any indications of that or maybe talk a bit about how you're thinking about handling that as you move forward.

But just kind of curious what your expectations are potentially around that truckload opportunity as things kind of move in. So maybe be it would be kind of larger LTL, smaller TL type of opportunities going forward..

Yes, I mean certainly that creates some opportunities for us. And it really just gets back to our sales team, their discussions and ongoing conversations with our customers what their customer needs are. And if they've got freight that needs to be moved and we can help out, obviously volumes are off for us.

Even though they're getting better, there is still down on a year-over-year basis. So we've got capacity and we're ready to help our customers whenever we can. If that's a heavier weighted shipment that might have moved by truckload, there is no such thing as bad freight, there is poorly priced freight.

So if we understand all the shipment characteristics and have got good pricing practices in place, which I believe we do, then certainly we're willing to handle about any shipment that a customer would want us to.

The best thing that we would see that the changing trends in the truckload world would be that if the truckload rates continue to increase. Typically, that has the effect of increasing many of our competitors cost structure. Many of our competitors use outsourced truckload for purchase transportation.

So if our competitors now have got some unexpected cost inflation, that's going to put more rate pressure for themselves to go back and increase their rates typically that has the effect too of moving normal LTL business our way. So multiple opportunities I think both from a direct and indirect basis for the truckload world improving..

Our next question will be from Allison Landry with Credit Suisse..

I was just wondering, Adam, could you give us a sense of how much the lower group health and dental expenses were in Q2? I know that you said some of that may come back in Q3 and in Q4. So just wondering if there's any color you could provided there to help us with modeling..

Yes, I mean certainly that was a benefit. Our overall fringe rate though in the second quarter was 33.6%. And we typically target about 34%. I think that at the beginning of the year, that was something that we talked about. And so just the change and we were at 34% in the second quarter of last year.

So those numbers are pretty comparable from period-to-period, but probably resulted, I would just say fringes overall and $2 million, $1 million to $2 million of savings comparing what we had this quarter versus what the fringe rate was in 2Q of '19. So a little savings there.

There is always sort of puts and takes in that fringe type of number, certainly we were fortunate, I guess, if you will, to see that group health and dental was down and some of the others were up.

And on a sequential basis, simply having more income in the second quarter than the first that drives things like our 401(K) match that we give to our employees and it's things like that continuously improving our benefits overall and giving more paid time off and doing some of these things that continue to motivate our employees, and we think helps drive the bottom line success as well.

They understand the success. They drive for the company. They get rewarded for it. So we think that's been a very motivational tool over the years for our employees and helping our culture..

And then, I'm sorry if I missed this earlier in the remarks, but could you give us the productivity metrics in the quarter? I think you said, sort of, they improved across-the-board, but some of the specific KPIs.

And then, if you could give us a sense of where you are with furlough and just your overall view on how to think about headcount levels in the second half? Thank you..

Sure. Yes, we didn't give the specifics on the productivity, but saw really strong performance, our platform shipments per hour for the quarter improved 7.1%, our P&D shipments per hour improved 4.2%, even our line haul light mode average had improved 0.8%.

And we talked about before that, that not all cost are variable, and running this line-haul network that we have serving 238 service centers, there is a fixed element of running that cost, but I was really pleased with all the level of productivity that we had and as such. When you look at our productive labor cost on a per shipment basis.

So again getting things back to how they are per shipment, overall they were right at about 3% cost inflation. And that's pretty much in line with the wage increase that we gave last year. So we had improvement.

We don't give this level of detail, but our P&D and our Dock costs per shipment were essentially both flat and then we had a little inflation overall in line-haul. But that would be expected based on that trend. I'd say, an update on the headcount.

Overall, in June, we were down - the full time employees were down 10.5% just comparing June of this year to June of last year. So we brought many people back from the furlough program. If you look and compare April to June.

The headcount is up about 4.5 overall, but if you compare kind of where we are today to where we were in March, we're down about 1,400 positions overall, which is about 7%. And based on where we are, our shipments per day should be higher in July than they were back in March.

So that was kind of what we've talked about in the prepared remarks that unfortunately when we go through an environment like this, we've made adjustments like, we have, but you find areas of productivity when each department leader is going through evaluating their costing and costs don't save them sales. It takes action and a plan.

We've gone through and we've figured out ways to be able to do more with less. And I think that's what we're seeing now. But if our accelerating trends continue, we certainly will have to continue to bring back some more employees, we fully expect and we'd like to that, because they go hand in hand with the increase in volumes.

But I think overall when you look at sort of the level of headcount with the volumes, those should come back in alignment and eventually show some improvement there..

Our next question will come from Jason Seidl with Cowen..

I wanted to talk a little bit about the residential delivery, as one of your competitors basically said they saw an uptick, almost a doubling in the percentage. It's still ticked down a little bit for them, but definitely above the prior year.

Can you talk a little bit about your experience with the residential market and how you see the margins there for OD?.

Jason, we do not measure the number of residential deliveries that we had. And I did anecdotally hear a whole lot of commentary about additional residentials. I know we had a few more in one segment of our business, but I don't think we saw a significant uptick in residentials at all..

And would you say that the margins on your residential deliveries are equal to or better than the regular margins?.

We, Jason, as all of our accounts, we price on based on the cost of those accounts require, and we price them accordingly. We price in the residential stop, there is a fee for that, as you know. We price them accordingly based on the cost.

So I think that's an account-by-account basis, but they are not necessarily better or worse than the other businesses..

And my follow up is going to be on any potential acquisitions and the outlook. I know in the past you mentioned your desire to potentially add some, I guess, business lines that would be complementary to your LTL operations.

We've also been here in the marketplace that the appetite for acquisitions as picked back up a little bit from sort of the start of COVID. Wondering what your thoughts on that going forward..

At this point in time, Jason, we - maybe we have somewhat of an appetite for an acquisition. I just - I don't know who that is or exactly what that is. At this point, we're not looking at anything currently.

And we always have opportunities across the desk and we evaluate those as they come along, but currently, at this time, we're not looking at anything in particular..

We'll now take a question from Scott Group with Wolfe Research..

So Adam just on the 3% drop in rev per day in July.

I missed it, if you said so, but directionally, can you talk about sort of the tonnage, weight and yield trends within just directionally?.

Yes. A lot of that is mainly on the tonnage. And so you've got some of the yield, if you will, sequentially that, that's moving up a little bit, but yeah, we're continuing to see acceleration essentially on the shipments and the time and our yields continue to perform as well. But overall, it's good to see.

Obviously that coming back closer to kind where we were last year after going through the second quarter and revenue being down double-digits and certainly it feels a lot easier to manage and should produce a lot more opportunities, once we can get back to the revenue being flat and eventually get back to a growth environment, which is what we're more used to..

And then I just wanted to ask a bigger picture question. So you're seeing the biggest revenue drop in a decade. And you put up record margins and by the way, it's not just you, we've seen this from some of the other trucking companies this quarter.

And I'm just trying to understand how this is happening? You mentioned a little bit of that healthcare cost, but do you think there is anything else unusual from a cost standpoint, either fuel or lack of congestion or something else? I guess and ultimately what I'm trying to figure out is next year we're going to have good volume and revenue growth, hopefully.

So should we be thinking about strong incremental margins next year and getting to a mid '70s operating ratio? Or is next year, a year, we get the revenue, but maybe we don't get the incremental margin, because there were something that was just unusual helping in this environment? I guess that's the question..

Scott, let me say this. There were certainly some things that worked in our favor, not just ours, but probably the entire industry. Obviously the traffic congestion was a lot less than it has been in the past.

We did save some money on the group health, and had less spend on customer entertainment, some marketing - areas in marketing were down from what we normally see. So there were some things that did say some short-term tight cost. But I'll say this, when this thing first started, we sat down as a management team and we made a plan.

And the one thing that I made very clear was we had to execute on that plan. We didn't dillydally, we executed and I think everybody took it very serious what they had to do. Our big concern was continue to give the type of service that our customers are used to.

We didn't cut anything from that standpoint, we're very pointed and determined in our efforts to continue those all of different service measures that we have and to continue to improve on those. We did it. And I think you saw it in a reduced claims and our own time percentage was still above 99%.

So we did not slack off in any way, shape or form from that standpoint. And I think our customers accepted it, while we may have saw some business walk for price early in the quarter. It started to come back later in the quarter as they realize they weren't getting what they were used to with OD.

So, yes, there were some areas where we did save some money. But we did a lot of the things that we had to do to help our sales from a productivity standpoint. So, yes and good. Certainly, we made a lot of things happen that we're very proud of at this point in time.

As far as next year, certainly, we think that there is an opportunity to continue to have the same type of productivity levels of improvement that we had in the second quarter. You can, measure it from there. We certainly expect our revenue growth to come back. Not exactly sure where that's going at this point in time.

Who knows where the economy is going to go, we're facing a lot of things later this year and on in the next year with the election year and all that, but a lot of challenges ahead, but we do definitely think, if we have some growth that we can drive however lower.

I don't think there's any doubt about it as we've said before, we think we can manage through the good times and the bad. I think we've proven that in the past, but I don't think there's any doubt. We will continue to prove that into the future..

We'll take our next question from David Ross with Stifel..

Just a follow-up on that a little bit specifically as it relates to fuel.

It seemed to be a tailwind for a lot of carriers in the quarter, what was the impact, Adam, of the sharp drop that we saw from March to April in fuel, was it a good guy in the quarter, significant --?.

Dave, we've tried to structure our fuel tables to really where they don't really impact us on the bottom line, too much one way or the other.

We got hurt a little bit a few years ago back in '16 and really didn't have the lower end of our table where it needed to be, but we address that throughout the year and then fully address that when the next GRI came about. So net-net, we try to do some back of the envelope type of calculations and believe it was fairly minimal, on a net basis.

Maybe overall slightly good. But the hard thing to try to negotiate and do these back of the envelope type of calculations is the simple fact that fuel is just another element that's pricing, that's negotiated with our customers.

So, if you've got somebody that, that wants to make in this environment look like their base rates were that, that they didn't take an increase, but we got an overall improvement in our fuel contribution or some other type of element that really gives us the same level of revenue then that just becomes a tool to negotiate with.

So it's really hard to try to make that comparison. But I'll say that the change on the call side, I mean obviously it hit us hard on the topline.

And then on the cost side, you see the change and the improvement in the operating supplies and expenses, a big driver of that not all of it, but a big driver of that was the decrease in fuel typically when fuel changes so significantly like that in a period, you'd see the corresponding increase in your labor cost.

And I think that hit kind of mask the overall improvement, if you will, to keep our labor cost essentially flat like we did in this environment with the surcharge revenue being down so much.

It was really impressive to me and I thought that was the biggest driver in our ability to improve the operating ratio was what we were able to accomplish with all of those labor cost as a percent of revenue..

And then, another thing impressive has been the insurance and claims line item, it's been remarkably low and steady in a tough insurance market for a long time.

Can you talk a little bit more either Adam or Greg about what really makes it a non-issue for you guys and not something that investors have had to worry about on the expense you probably just had..

Well, there is two elements that go into that insurance and claims line, that's our auto accidents. We call it BIPD. The bodily injury and property damage in the cargo claims. And fortunately for us, our cargo claims has consistently improved and almost non-existent at a record 0.1% for this most recent quarter. So that element has come a long way.

You go back to the recession, when I felt like we really differentiated ourselves the great recession of '09, when we really differentiated ourselves from our competition. We are above 1% and we believe that, that's where the industry average is likely still north of 1% from the data that we get and feedback from customers.

So that's a good thing that we've consistently driven that claims ratio down.

On the auto side, certainly this year and it's in the second quarter, like most of the other carriers, we're facing significant inflation with our insurance rates, but we've been very fortunate with the fact that all the investment in new equipment and safety systems and training and so forth that we've made over the years, those all have accident mitigation type of tools with them.

And our tractors now and then just continuous training on the Dock and other places and that we've done. And so there is an element that goes into this line, there is an element in our salaries, wages and benefits that goes hand in hand with those safety programs. And we continue to see workers' comp which is in the benefit line to improvement there.

And so I think it's just, it's been a focus of our company that have safety programs in place and always be trying to continuously improve those and I think we've seen a big benefit, the insurance line is one, but, there is a hidden one that's in the fringe benefit line on the workers' comp that goes hand-in-hand.

So if we can just keep our accident frequency ratios low those continuously improve and try to keep severity low as well and some of that's mitigated by the investment in technology on the tractors. And hopefully we can keep that line item consistent like it has been in that 1% to 1.2% type of range..

Our next question will come from Ari Rosa with Bank of America..

So, Greg, you mentioned in your opening remarks, some lasting changes to supply chains as a result of the pandemic, which you think could benefit LTL carriers. I was just hoping you could elaborate on that a little bit and get into some details.

And then maybe in the process touch on what kind of e-commerce volumes you're seeing and if you've seen a big uptick in demand on that front and how it might impact your business?.

We did see increases on those e-commerce type accounts. We did see some big revenue jumps with those particular accounts on the inbound side for us particularly. I think you know we don't participate in a lot of home deliveries and that kind of thing, but there is another end of that. So we did see some upticks on those accounts, which is a good thing.

And that was really what those comments we're pointed towards. I think we'll continue to see those type of customers business basis grow. So I think that's a good thing for us generally speaking..

And does - do the characteristics of that business from either pricing or kind of weight standpoint vary in terms of how it impacts your costs. I mean, I imagine you're still going to be pricing appropriately as you've kind of hammered home for years.

But how does that business vary in terms of its characteristics?.

Those accounts, Ariel, they have practically everything, they have a very, very wide variety of products. So, yes, each account that goes into those is vastly different, but they are all priced accordingly. So I don't think there is anything different generally speaking than with a lot of our other accounts, but we will price them accordingly.

Regardless of the product..

Got it, thanks..

Yes - I was just going to add that we've seen growth over the last couple of years in our retail-related business. It's close to 30% of our overall revenues that were still closely align with the industrial sector. But, nevertheless, that business has been growing.

So this has been a trend that's been evolving but certainly accelerating in this environment and things are going to completely change overnight.

In terms of supply chains and whatnot, but certainly we feel like that more fulfillment centers, things of that nature, as they continue to be built around both the landscape and much of the freight that will be inbound those fulfillment centers will be more conducive to the LTL type quantity shipments.

And so we certainly believe that we've already been winning business in that area and can continue because to be able to maintain the manage inventory quantities and the number of SKUs that they want to have in those facilities.

You've got to have tight inventory controls and that requires confidence in your carrier to deliver on time and without damage and certainly, I think we've proven that we do that better than anyone and I think that we'll be able to continue to participate and that element of the business continuing to give us a little market share..

And then I just wanted to touch for my last question on, the operating ratio and I know this is obviously, you guys have addressed this a bit, but really impressive.

On the cost front, is it appropriate for us to be thinking about a sub 80 operating ratio is kind of the new plateau and would it be a surprise to see that tick back up if congestion returns the highways and that sort of thing and then in the past you've occasionally provided a view on where you expect incremental margins to be I think you've kind of talked about something in the 25% range, should we be looking for kind of a step-up based on, based on this quarter, and just the impressive performance you're able to deliver..

I mean certainly there will be some costs that will come back into the business and we'll be prepared for those, but there should be other cost savings opportunities.

Keep in mind with the big drop in revenue that we saw typically when you look long term it's the density, the revenue per service factors is that has increased the operating ratio has improved and when we look at individual service centers and regions around the country.

We know that we've got ongoing opportunity to improve our operating ratio and it really is driven down to the service center level.

When you look and think about all the dollars that we've invested over the years and expanding our door capacity and then the individual opportunity to improve the service centers ratio, all those 238 service centers roll up into the company average.

And you might have some that we've just expanded and maybe curve, the operating ratio, but you've got a much larger group that we're leveraging all the fixed cost there because we own most of our facilities, and so it gives us confidence that we can continue to drive this operating ratio lower once the density factors come back, but it's the density and the yield and both of those generally require a positive economic backdrop to support each.

Those are the two key really to drive long-term operating ratio improvement and we're going to continue to focus on those. It's a matter of managing revenue quality and cost and we've got to consistently do both.

We've got to continue to look for ways that we can keep our cost inflation low while continuing to also give the service to our customers that provides value and allows us to get the consistent rate increases that we need as well and so this just continues to build on itself and also allows us to do.

The most important thing and that's taken care of our employees and keep them motivated keep on them engaged to continue to give service to be productive that employee and our family culture that we have is really what's been driving our long-term success. When we want to make sure that we don't miss out on that element as well..

Our next question will come from Amit Mehrotra with Deutsche Bank..

All the good questions have been answered. Asked to answer. So, I guess, I'll have to ask a couple of bad one. So forgive me. I'm just want to think about the sequential, I mean, I know OR is kind of an output of various moving parts.

And as I think about the sequential movement from 2Q to 3Q, I just wonder why the output won't actually be more challenge, especially given what's happening in the weight per shipment side, because correct me if I'm wrong, Adam, you mentioned that weight per shipment kind of was volatile, but then maybe went down towards the end of the quarter.

So as shipments are going up, weight per shipment coming down, you're adding resources just to serve the shipments, wouldn't that represent, I mean, it's maybe overly simplistic, but doesn't represent maybe an incremental headwind on the OR as we think about kind of moving parts.

If you can talk about that?.

Yes, I mean, certainly there are a lot of moving parts right now as we work our way through this environment. And so, yes, sequentially, the weight per shipment is coming down, but all up on a year-over-year basis, our weight per shipment was pretty low last year in the third quarter.

But I think that we'll continue to keep our focus on maintaining our revenue quality. And if we can keep that revenue per shipment high, which will - we have no intent to change anything related to our pricing philosophies, a little bit lower weight per shipment, then certainly can.

If you've got the same cost per shipment to handle, then that can put a little compression on that individual shipments margin.

But again getting the leverage from the revenue growth, like, we talked earlier that's, if you just sort of run out for the quarter kind of this trend that we're seeing in July, you'll have significant improvement sequentially in revenue.

And so, the leverage that can come from that is significant and should offset any other type of challenge that we have, typically our overhead cost average 20% to 25% of our revenue. And in the second quarter, they were about 24%. It's a period with revenue weakness.

And even though the aggregate cost, absolute cost were lower on a year-over-year basis in the second quarter and they were lower in the second quarter than the first that some of the action that we took, we obviously saw a lot of the increase in those cost as a percent of revenue due to the revenue weakness.

But sequentially if we can show that improvement, there - and not increase as overhead costs, you're going to get a lot of leverage there and we'd expect to be able to work that 24% back down closer to the lower end of the range. Certainly it will be the idea.

And then we just got to keep the focus, and I can assure you we will on maintaining all of our labor to revenue statistics, all of our productivity across all areas of the operations, that's the biggest cost element that we have, but again when density comes back into the network as we are talking about our line-haul cost earlier, that should improve that line-haul costs that's more semi-variable.

So the density coming back in the revenue, certainly, that should give us much more opportunity than any other pressures related to a little bit lower weight per shipment should present..

And then, I don't if I missed it, did you talk about year-on-year tonnage in July? I wasn't sure if you had mentioned that or not?.

Well, I just generally said, July is now done and we got out of the habit of giving the number in the middle and even though we've got two days left, but given an interim month exact number and then the comparison that created and sometimes panic or sometimes exuberance that maybe neither was warranted of the change between the day of call and then what the actual number was.

So I kind of talked around it, I guess, but we're down - the revenue is down about 3% sort of plus or minus at this point and we'll see where we end up with these next two days of revenue. And the weight is somewhat in that - the weight per day is somewhat in that same ballpark. So that's continued to show improvement from where we were in June.

And July has been a really strong month. Typically July is a month that the revenue falls off a couple of points from June.

And to see, the revenue continued to accelerate and we've actually got revenue per day that is higher in July, certainly that's a big benefits and provides us with a lot of encouragement as we go through the third quarter to see if these trends continue, because usually July is the weakest month of the third quarter.

So we'll continue to see how these trends play out, but certainly gives us a lot of encouragement to see our customers continuing to reopen their business to increase the levels of business they're giving us an and some of the new wins that we've been able to create, while our sales team hasn't even really been out - be able to be out on the street, making sales calls.

So it's been a coordinated effort, and our sales team got to give them a lot of credit for having to change the way they operate, how they communicate, but the coordination between our sales, cost and pricing team and continue to stay engaged and strengthen relationships with our customers.

I think that's a big piece of not only our long-term numbers, but the improvement that we're starting to see as we go into the third quarter..

Let me add that. We saw our revenue trend start to improve in June. And, so far, through the month of July, they've continued to be very consistent and they look down the line.

If you look at revenue per shipment, weight per shipment per hundred and all of those different things that we measure from a revenue standpoint, they're all consistent and look very good so far. So we hope that trend will continue. But we are encouraged by not concerned at all. We are very encouraged at this point..

Our next question will come from Jordan Alliger with Goldman..

Just a big picture question, your service standards have always been tremendous part of competitive advantage in the LTL space. I'm just wondering, the industry itself, competition or is the competition catching up, we're doing things in the right direction.

Does that impact the gap between you and the competition or is it still so head and tails above everyone else with the competitive advantage generally remains..

Jordan, let me say, first off, everybody has service standards and filing a lot of cases they're very similar carrier-to-carrier. Ours I think are in line with most of our competitors are better. But service runs a lot wider gamut than just A to B on time. And there is still a lot that goes into service.

And I think that's where OD excels compared to our competitors. And if you look at all other things that we've done over the years and we talk about the low claims ratio, but that's a big part of it. A to B on time is a big part of it. Our employees are engaged.

They know what their role is, as it relates to service and they execute on that role every day. Whether it's a Dock worker or the person that answers the phone in the office and talks to our customers, how they deal with our customers. Making timely pickups, making appointment times, all of those things.

There is just an awful lot of elements that go into service. And I think we measure up far better than our competitors on the day-to-day basis. And that's why I think when we sometimes lose business over price, but it comes back because of service and at the end of the day, we're getting it back and we're getting it back at our price.

So there is an awful lot that goes into that. We've put a lot of work into that over the years and it's paying off. So we will continue to focus in that area and continue our commitment to our customers. So it does make a difference. Hope that answers your question..

Yes, that's very helpful. Thank you..

And our next question will come from Ravi Shanker with Morgan Stanley..

This is Christine on for Ravi Shanker. Thanks for squeezing me in here.

And so, maybe circling back to some of the commentary around e-commerce and sort of a tangential theme to that, are you guys seeing any or do you expect to see any sort of boring of lines between the LTL and TL operation kind of moving forward over the next couple of quarters and years, I think, the policies to be shortening on the TL side and on the LTL side, seems like the shipments are getting a little bit heavier, are you guys seeing any, again more blurring there?.

Not that we can tell to be honest with you, no. Yeah, certainly, I think as suppliers try to get closer to their customers, the TL length of haul would get shorter, but we haven't seen that trend at all in our business. I believe the haul has been very consistent over the last several years.

And to be honest with you, if anything, we're seeing a little bit of an increase of late. So if there is blurring our lines, we can't see it. There is still a pretty big distinction..

And then maybe just one follow-up, sort of bigger picture.

As your strategy evolved at all in the last couple of months around, you know, electric vehicles, whether that's in P&D or maybe some shorter haul, other short-haul operations for you guys with some of the developments that we've seen from the OEMs in the last couple of months here?.

Well, to say this, I don't think that technology has evolved to the point that it's all that useful for us yet. There is still a lot of issues with it. I know we all hear see and read things that sound good, but I'm not sure of the practicality in our particular company, it's just not - the technology is not there yet.

We can't make it work, as it currently stands today. So I think it will continue to evolve and I think there will be an application down the road and maybe sooner than later, but we'll just have to wait and see. There is still a lot of issues with it, at this point and hopefully, it will get there, but it is just not there yet..

And that does conclude our question-and-answer session for today. I'd like to turn the conference back over to Mr. Gantt for any additional or closing remarks..

Okay, thank you all for participating today. We appreciate your questions. And please feel free to call us, if you have anything further. Thanks. And I hope you all have a great day..

And once again that does conclude today's conference. We thank you all for your participation. You may now disconnect..