Old Dominion Freight Line Q2 2021 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2021

Key Takeaways

  • Delivered record Q2 results with revenue up 47.2% to $1.3 billion, operating ratio improving 550 basis points to 72.3%, and earnings per share rising 84.8% to $2.31.
  • Maintains a capacity advantage—estimated 15–20% excess network capacity—backed by $1.7 billion invested in service centers over the past decade, with nine new facilities and door expansions at 12 centers planned in H2.
  • Stepped up hiring by adding over 1,100 full-time employees in Q2 and targeting an additional 1,000 in Q3, while leveraging third-party transportation to meet volume growth until fleet and workforce capacity align.
  • Board approved a new $2 billion share repurchase authorization, alongside Q2 operating cash flow of $198 million and continued commitment to funding strategic CapEx before returning excess capital to shareholders.
  • Experiencing equipment delivery delays and running older units temporarily, but expects all 2021 orders to arrive in time to meet second-half capacity requirements.
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Earnings Conference Call
Old Dominion Freight Line Q2 2021
00:00 / 00:00

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Operator

Good morning, and welcome to the Old Dominion second quarter 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.

Drew Anderson
Drew Anderson
Company Representative at Old Dominion Freight Line

Thank you. Good morning and welcome to the second quarter 2021 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through August 4th, 2021 by dialing 877-344-7529, access code 10158075. The replay of the webcast may also be accessed for 30 days at the company's website.

Drew Anderson
Drew Anderson
Company Representative at Old Dominion Freight Line

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements.

Drew Anderson
Drew Anderson
Company Representative at Old Dominion Freight Line

You are hereby cautioned that these statements may be affected by the important factors, among others, that are 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.

Drew Anderson
Drew Anderson
Company Representative at Old Dominion Freight Line

As a final note, before we begin, we welcome your questions today, but we do ask, in fairness to all, that you limit yourselves 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.

Greg Gantt
President and CEO at Old Dominion Freight Line

Thank you. 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'll be glad to take your questions. The OD team produced another record-breaking quarter and established new company records for quarterly revenue, operating ratio, and earnings per diluted share.

Greg Gantt
President and CEO at Old Dominion Freight Line

While the comparison of our numbers with the second quarter of 2020 is somewhat skewed due to the impact of the pandemic related shutdowns last year, our second quarter business momentum this year helped drive the improvement in our revenue and profitability. Our revenue grew 47.2% to $1.3 billion, and our operating ratio improved 550 basis points to 72.3%. As a result, our earnings per diluted share grew 84.8% to $2.31. We achieved these results by continuing to execute on our long-term strategic plan.

Greg Gantt
President and CEO at Old Dominion Freight Line

This plan has guided us through many economic cycles, and it is currently driving impressive growth in this strong market. Two key elements of this plan are delivering superior service at a fair price and consistently investing in capacity to help ensure that our network is never a limiting factor to our growth. We often discuss our unwavering commitment to providing our customers with superior service.

Greg Gantt
President and CEO at Old Dominion Freight Line

This quarter, I would like to offer a deeper dive into how we think about capacity, given its relevance to the current environment. There are three major elements of capacity within LTL, doors at our service centers, our equipment, and our people. Doors can be the most limiting form of capacity in the short term, which is why we try to stay several years ahead of our anticipated growth curve.

Greg Gantt
President and CEO at Old Dominion Freight Line

We have invested $1.7 billion in our service center network over the past 10 years, which has allowed us to expand our door count by over 50%. Our current capital expenditure plan includes $275 million to further expand the capacity of our service center network, but we are willing to spend even more if we identify properties that are included in our long-term plan.

Greg Gantt
President and CEO at Old Dominion Freight Line

Our commitment to the ongoing expansion of our service center network is important regardless of the macroeconomic environment due to the strong returns on capital for our business. We have consistently invested in Old Dominion's expansion, even in years when our market share trends have been flattish due to the confidence we have in our long-term market share potential.

Greg Gantt
President and CEO at Old Dominion Freight Line

Although expanding the capacity of service centers takes a significant amount of time, demand trends can change very quickly in our industry, which is why we have historically been proactive with respect to our expansion efforts. This unique strategy has created a large capacity advantage for us in the marketplace, which becomes most apparent to shippers in tight environments like this year.

Greg Gantt
President and CEO at Old Dominion Freight Line

We estimate that we currently have 15% to 20% excess capacity within our service center network, and we expect to open several new facilities during the second half of this year. As a result, the capacity of our overall service center network is in good shape, although we continue to focus on the needs of certain locations to help ensure we are keeping up with increased opportunities for growth.

Greg Gantt
President and CEO at Old Dominion Freight Line

We are prepared to address these needs as well as any other elements of capacity that need to be expanded as it appears that current demand trends will continue into 2022. We believe the domestic economy is strengthening for both our industrial and retail-related customers, and we expect additional growth in volumes based on current economic forecasts as well as customer feedback. We also continue to see accelerating trends with our revenue.

Greg Gantt
President and CEO at Old Dominion Freight Line

We have exceeded our normal sequential trends for each quarter since the cliff event that affected the second quarter of 2020. This outperformance has continued with our month-to-date revenue for July 2021 as well. While we feel good about our service center network, we have faced challenges with the other elements of capacity this year.

Greg Gantt
President and CEO at Old Dominion Freight Line

There have been some delays with equipment deliveries that have caused us to continue to operate older units that were intended to be replaced. We are fortunate to have this as an option due to the fact that we have one of the youngest fleets in our industry. While our suppliers are somewhat behind schedule, we do believe that we will receive each unit that we have ordered this year.

Greg Gantt
President and CEO at Old Dominion Freight Line

These new units will supplement our current pool of equipment and are expected to satisfy our equipment needs through the second half of this year. The capacity of our people continues to be our biggest need to support ongoing growth. We were successful during the second quarter with our hiring efforts and actually exceeded our goal for the period.

Greg Gantt
President and CEO at Old Dominion Freight Line

We added over 1,100 full-time employees between March and June. We expect to add another 1,000 full-time employees during the third quarter of this year. We will continue to use third-party purchased transportation to supplement the capacity of our people and our fleet until those two elements of capacity catch up with the growth in our volumes.

Greg Gantt
President and CEO at Old Dominion Freight Line

Regardless of whether it is our employees and equipment or a third party moving the freight, we remain focused on providing best-in-class service to our customers. As I previously said, providing superior service at a fair price and having capacity to stay ahead of our growth curve are two key pillars to our long-term strategic plan. The centerpiece of our plan, though, remains our people. Our OD family of employees is committed to servicing our customers while also growing our business.

Greg Gantt
President and CEO at Old Dominion Freight Line

As a result, we believe we are better positioned than any other carrier to take advantage of the opportunity for further profitable growth and increased shareholder value over the long term. Thank you for joining us this morning, and now Adam will discuss our second quarter financial results in greater detail.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Thank you, Greg, and good morning. Old Dominion's revenue growth of 47.2% in the second quarter included a 28.1% increase in LTL tons and a 14.9% increase in LTL revenue per hundredweight. Excluding fuel surcharges, LTL revenue per hundredweight increased 10.3%, reflecting the success of our yield improvement initiatives, as well as changes in the mix of our freight.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

While the growth in our revenue and volumes reflects an easier comparison with the second quarter of 2020, the sequential acceleration in our revenue during the second quarter was once again well above normal sequential trends. On a sequential basis, second quarter LTL shipments per day increased 12.1% over the first quarter of 2021 as compared to a 10-year average sequential increase of 7.6%. LTL tons per day increased 9.7% as compared to a 10-year average sequential increase of 7.9%.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

These 10-year average trends exclude our 2020 metrics for a more normalized comparison. While both our shipments and tons outperformed our long-term averages, the discrepancy between our shipment and tonnage trends is a result of the decrease in our LTL weight per shipment. We have made operational changes over the past few quarters, mainly through pricing actions, to limit the number of heavy-weighted and larger, harder-to-handle types of shipments in our network that are typically more transactional in nature.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We increased these efforts during the second quarter given the ongoing tightness in our industry to preserve capacity for our customers' traditional LTL shipments. At this point in July, with only a few days remaining in the month, our revenue per day is trending higher by approximately 35% when compared to July 2020.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

The year-over-year revenue comparison gets tougher for us in the third quarter as our revenue per day turned positive in August 2020 and increased overall for the third quarter of 2020. We will provide actual revenue-related details for July in our second quarter Form 10-Q. The operating ratio for the second quarter improved 550 basis points to a company record 72.3%, with improvement in both our direct operating costs and overhead expenses as a percent of revenue.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

This improvement was essentially in line with the target we discussed on our first quarter earnings call. Overhead related cost as a percent of revenue improved 490 basis points due primarily to the operating leverage created by the quality of our revenue growth. Much of the overall improvement in overhead as a percent of revenue related to our depreciation and wage and benefit costs for our sales and administrative employees.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Within our direct operating costs, the wage and benefit cost for our drivers, platform employees, and fleet technicians improved due primarily to an improvement in the overall efficiency of our operations. This improvement more than offset the increases in operating supplies and expenses, which reflects the rising cost of diesel fuel and other petroleum-based products, as well as the increased utilization of purchased transportation to supplement our workforce.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

While we will continue to add employees during the second half of this year to support our anticipated growth, we believe we can effectively balance our direct operating costs with revenue as we continue to focus on productivity and ultimately reduce our reliance on purchased transportation. Old Dominion's cash flow from operations totaled $198 million and $508.3 million for the second quarter and first half of 2021, respectively, while capital expenditures were $155.1 million and $206.1 million for the same periods.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We returned $63.2 million of capital to shareholders during the second quarter and utilized $395.4 million of cash through the first half of this year for both our dividend and share repurchase programs. This year-to-date total for share repurchases includes $68.8 million that is deferred until the third quarter when the final settlement occurs on our current accelerated share repurchase agreement. We announced this morning that our board has approved a new share repurchase program that provides us with the authorization to repurchase up to $2 billion of our outstanding stock.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We intend to fund this program with cash flows from operations and existing cash to continue our focus of returning excess capital to our shareholders. Our first priority for capital spending, however, will continue to be strategic investments in capital expenditures to support the long-term profitable growth of our business.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Our annual effective tax rate for the second quarter of 2021 was 26% as compared to 25.7% in the second quarter of 2020, and we currently anticipate our effective tax rate to be 26.0% for the third quarter. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Kindly limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Jack Atkins with Stephens. Please go ahead.

Jack Atkins
Jack Atkins
Analyst at Stephens

Okay, Greg, good morning. Greg, Adam, congrats on a great quarter.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Thanks, Jack.

Greg Gantt
President and CEO at Old Dominion Freight Line

Thanks, Jack.

Jack Atkins
Jack Atkins
Analyst at Stephens

I guess first question, Adam, could you talk about, you referenced the July revenue per day being up 35%? How does that compare relative to normal seasonality? From what Greg was saying, it sounds like you're trending above normal seasonality.

Jack Atkins
Jack Atkins
Analyst at Stephens

When we think about the operating ratio, given we're seeing inflationary cost pressures across the supply chain, you guys are talking about hiring an additional 1,000 folks in the third quarter. How should we think about operating ratio trends in the third quarter versus the 2Q relative to normal seasonality, which I think calls for some very modest degradation, if I'm thinking about that right?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Sure. Yeah, on the revenue per day basis, obviously we've still got a few important days to close out the month. We're trending very favorably at this point for the month of July. Our revenue per day at this point is a little bit stronger than what our normal sequential trends would indicate. It really just follows the pattern that we've seen over the last four quarters that we referenced.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We've exceeded normal sequential trends on a quarterly basis, and really see no reason at this point why that would change as we go into the third quarter. The market continues to be really tight. The feedback that we're getting from customers, we just continue to see the service advantage and capacity advantage that we have in the marketplace is winning share for us.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're trying to do all the things as we referenced in our prepared remarks to continue to prepare for further growth and to provide best-in-class service to our customers. We'll continue to do all those elements to get prepared and as we get through the balance of this year and really continue to try to position the company for 2022.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

With respect to the margin question, we typically see about a 50 basis point increase in the operating ratio from the second to the third quarter. I think that we'll see somewhere in that same ballpark, 50 to 70 basis points maybe. Kind of flattish as we go from the second quarter, or I consider that flattish. Just a slight increase. We typically see and have our wage increase that is effective the 1st of September.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're a little behind schedule on some of our equipment deliveries, as Greg mentioned as well. That means that we'll have a little bit more depreciation hitting us in the third quarter than typically where it would have been loaded into the first half of the year. A few factors like that may come on board, but certainly continuing to see strength as we work our way into the third quarter.

Jack Atkins
Jack Atkins
Analyst at Stephens

Okay. That's all very helpful, Adam. Thank you. I guess maybe for my second question, more of a bigger picture, longer-term question, but there are a lot of just concerns among investors with sustainability of the freight market and trends. Obviously, you guys are expecting the current strength in the market to continue well into 2022, if I'm quoting you correctly.

Jack Atkins
Jack Atkins
Analyst at Stephens

But the investments you're making in your business should position you to take market share. I think when you look at the market more broadly, how are you thinking about secular growth within LTL, given its leverage, increasing leverage to e-commerce and the importance of e-commerce, middle mile e-commerce demand to overall LTL growth over the next several years? Could you maybe talk about that for a moment, Greg? It seems like that's something that could really lift tonnage in the broader LTL industry, and you guys are in a great position to capitalize on that.

Greg Gantt
President and CEO at Old Dominion Freight Line

Sure, Jack. No question about it. I mean, the e-commerce has continued to grow, as everybody knows, and we've benefited from that as well as some of our competitors. It's strong. I'm not sure I see any change in that. If anything, continued growth, especially with the changes that we've had with the COVID and how people continue to stay at home and work from home and those kind of things.

Greg Gantt
President and CEO at Old Dominion Freight Line

I think that'll continue to drive some of the e-commerce and the middle mile business that we've enjoyed in the last period of time. Definitely strong, getting stronger. I think, like I mentioned before, with all the investments that we continue to make and positioning ourselves to have capacity and to be able to do the things that some of our competitors can't because of it, I think we're in a good position, Jack.

Jack Atkins
Jack Atkins
Analyst at Stephens

Okay. That's helpful. Thanks, guys.

Operator

The next question comes from Jonathan Chappell with Evercore. Please go ahead.

Jonathan Chappell
Jonathan Chappell
Managing Director at Evercore

Thank you. Good morning, everybody. Greg, continuing on that theme. If my notes are correct, last quarter you said you had about 25% to 30% excess capacity in your network for growth, and today you said 15% to 20%. Are you pushing up against the limits of where you're more actively going out to try to take share to keep around that 15%, a just in case excess capacity? Do you still feel that you could be more aggressive as it goes out with pricing and trying to take share in the back half of the year?

Greg Gantt
President and CEO at Old Dominion Freight Line

Well, I can tell you, we won't be aggressive and take share with price. We've never used that strategy and certainly don't intend to do that in this market that we're in today. As you know, we're extremely busy. The 47% growth, that type of growth, it does take capacity out of your network pretty darn quick.

Greg Gantt
President and CEO at Old Dominion Freight Line

I will say this, we've got some nine, if I looked at it correctly, we've got nine facilities that we're trying to open in the back half of this year. I'm not sure we'll get all nine of them open, we will get several of them between now and the end of the year, and the others should come early in 2022. We have some one dozen or 12 service centers where we're adding doors. We're adding door capacity.

Greg Gantt
President and CEO at Old Dominion Freight Line

We're working on continuing to grow our capacity just as quickly as we can. Besides that, those are just the projects that are underway. That's not counting all the things that we're trying to accomplish with land purchases and those kind of things. We're working to grow it as we speak. It's an ongoing effort. Again, this business that we're facing today, it takes it out pretty darn quick. Sometimes it takes it out quicker than you can put it back. We are working on it, like I said, as we speak.

Jonathan Chappell
Jonathan Chappell
Managing Director at Evercore

Okay. To be clear, I wasn't insinuating you'd be taking share with price. I was hoping that you'd be taking share with capacity and then pricing it as efficiently as you have been. Just the follow-up for Adam. Once again, going back to April, you had insinuated that PT hopefully would be down in Q2, but most likely wouldn't be, and it really wasn't.

Jonathan Chappell
Jonathan Chappell
Managing Director at Evercore

Really expecting it to come down in the second half. I know you look at it holistically with wage and benefits as well, and you're adding 1,000 people in the third quarter. Is it still likely that PT can come down on a meaningful basis in the second half? Given that capacity shrink and maybe some issues with hiring, we should think about PT being maybe a bit more inflated than usual in the second half of the year?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

I think for the third quarter, especially, that it's going to stay at an elevated amount. We actually used quite a bit more in the month of June as we worked through the end of the quarter. The strength that we typically see there, we actually had to step up our utilization of it somewhat, and would expect it to be actually probably a little bit higher in the third quarter than the 3.3% that we used in Q2.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

I think that as we continue to be successful with bringing people on board, that we'll be in the position to hopefully through the fourth quarter and as we transition into Q1 of next year to be able to increasingly use our people and our equipment and reduce that reliance.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Because of the strength of the top line, we've just had to continue to pull that lever of using the purchased transportation to continue to serve our customers. That's certainly something that we can continue to do through the third quarter. Ultimately, as you know, our strategy is to try to have everything insourced from a domestic linehaul standpoint, and that's where we ultimately want to get back to. It's just because of the strength of the top line, we've had to use it a little bit longer through the year than we had originally intended.

Jonathan Chappell
Jonathan Chappell
Managing Director at Evercore

All right. Well, it's a good problem to have. Thanks, Adam. Thanks, Greg.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Sure.

Greg Gantt
President and CEO at Old Dominion Freight Line

Thanks.

Operator

The next question comes from Jason Seidl with Cowen. Please go ahead.

Jason Seidl
Jason Seidl
Managing Director at Cowen

Thank you, operator. Hey, Greg. Hey, Adam. Good morning, gentlemen. Wanted to touch a little bit on freight selectivity and any accessorial charges because one of your competitors who had reported really noted that that helped them out in the quarter. I got a sense that maybe their accessorial charges were sort of not up to market. Just curious, how much do you think that gave you a boost in the quarter? On freight selectivity, how much of that is permanent versus just depending upon the market itself?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Jason, I don't know that any competitor's actions in terms of new accessorials or changes in accessorials necessarily impacts us. Obviously, when the pricing environment is strong, like it is right now, that provides a lift to everyone and supports our own pricing initiatives. I think we have a differentiated approach to pricing, and we've seen that, and it's really been the foundation for why we produce such long-term, profitable growth.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We have a strategy of looking at our cost inflation, and then we try to target increases in our revenue per shipment to give us a cost-plus pricing. That formulates the approach every year. It goes into our general rate increase. When we push that out, that goes into what we try to achieve from a contract renewal standpoint as well.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

With that said, each account must stand on its own from an individual profitability standpoint, so we look at each account on an individual basis and what the cost inputs are for that particular account, and what our pricing needs to look like to provide an appropriate return for us. I think we've got really good consistency across our book of business. I think we saw that last year in the disruption, and in particular in the 2Q, when a large percentage of our business shifted to larger national accounts. I think there was a concern by some on the street about what that would do to margins.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We went through the second quarter last year with a 15% decrease in revenue, a change in the mix of our business, but we were able to still improve our operating ratio with the pricing actions and the cost control measures that we had in place as well. We're going to stick to our long-term consistent approach and continue to push for cost-plus pricing because it's important for us to continue to expand our capacity.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're one of the few carriers that really has invested over the long term. As Greg mentioned this morning, we've invested and expanded our door count over the last 10 years by over 50%, and that supported about a 50% improvement in shipments per day over that same timeframe. We're uniquely positioned to continue to gain share in a market that continues to somewhat, at least from the reports we get on the public carriers, the number of service centers over that

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

10-year period has stayed about the same or reduced slightly. It's a good spot for us to be in to continue to take advantage of opportunities. Certainly, we're going to do it with price, but we should see the volumes come through and improve density as well. As you know, that density and yield formula produces long-term improvement in our operating ratio, and so we've got further room to improve from where we are today.

Jason Seidl
Jason Seidl
Managing Director at Cowen

You guys have clearly been the best at that density and yield formula over my career. Wanted to get back to the excess capacity, and you said obviously 15% to 20% is in the network right now. That obviously doesn't include any of the nine facilities that you're targeting to add in the back half of the year. If we look on a historic basis, what's the lowest that number has ever been in terms of excess capacity?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Oh, gosh, Jason, you'd have to go way back. I think there was maybe a point in time, and I'm going way back some 20+ years, when we probably had very little capacity. I don't know how long you followed us exactly, but-

Jason Seidl
Jason Seidl
Managing Director at Cowen

Twenty-two

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

22? That's probably about when we really ramped it up. Really, it was in the early 2000s, we really ramped up our efforts to start expanding our capacity, and it's been ongoing since then, really. I don't know that we really measured it or talked about it. If we did, I don't recall it back then, but I can tell just from being here, it was extremely minimal. How about that.

Jason Seidl
Jason Seidl
Managing Director at Cowen

Minimal. Okay. I guess what the question I'm trying to get at is, there's a certain amount of excess capacity that you probably want in your network. You sort of get diseconomies of scale and things become tight, and your operations might suffer if you're operating at a 105% or something like that and jamming freight through the network. What's that number? What's a comfortable number to get down to? Obviously, 20% is probably too much capacity, and it allows you to grow, what's a comfortable level on an operational basis to keep up sort of your service metrics for the clients.

Greg Gantt
President and CEO at Old Dominion Freight Line

Jason, let me say this. We talk about the 15% to 20% or 20% to 25%. We talk about those numbers really for your benefit. To tell you the truth, that's not necessarily how we look at it. We look at it on a need basis. We look at where we know that we're outgrowing our capacity, and those are the places that we try to address first. Now, obviously, when we expand a location or build a new location, whatever, we're building capacity and we know, okay, we're 50%, 70%, 80% of capacity in that place, and we'll roll it up to come up with a number for you guys. Honestly, we look at it on a case-by-case basis.

Greg Gantt
President and CEO at Old Dominion Freight Line

We look at it on a market-by-market basis, where we're busting at the seams and where we're growing, and maybe where we just haven't done quite the job from a marketing standpoint or from a sales standpoint. We know we're on the low side, and we know we can improve in those markets, and those are the ones that we target for growth or for expansion, if you will. I hope that makes sense, and I hope that answers your question.

Jason Seidl
Jason Seidl
Managing Director at Cowen

No, it does. It makes a lot of sense. Appreciate the time as always, gentlemen.

Greg Gantt
President and CEO at Old Dominion Freight Line

Sure.

Operator

The next question comes from Allison Landry with Credit Suisse. Please go ahead.

Allison Landry
Allison Landry
Senior Equity Research Analyst at Credit Suisse

Thanks. Good morning. Just going back to the question on purchased transportation, could you maybe tell us what % of your line haul that you're currently outsourcing, and if that's changed over the last couple of quarters? Maybe remind us what it's been historically and when you think you'll be able to bring most of it back in-house?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Allison, we don't necessarily track in terms of number of dispatches. We see how many we're utilizing and in what spots and are selective with where we're doing it. The baseline purchased transportation that we have that is our Canadian operation and truckload brokerage primarily usually runs about 2.2%, thereabouts, of revenue.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're up about a full operating point on that, about 110 basis points or so. Like I said, I think that may go up slightly, maybe 3.5%, 3.7% or so in the third quarter as we continue to utilize it. We're making our efforts every day. Every driver that we can find, we're bringing in and onboarding and continuing to put in place. It's overall a very small percentage of dispatches that we have that are being outsourced.

Allison Landry
Allison Landry
Senior Equity Research Analyst at Credit Suisse

Okay. That's helpful. Obviously, there's been some notable transactions in the LTL space by some TL carriers. Just curious to get your thoughts on any potential implications, whether that's from a pricing standpoint or perhaps it opens up some terminal availability for you, and maybe if you think there's the potential for further industry consolidation or M&A. Thank you.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

It's something that at least from the early indications of what's been pointed out on the street, the few transactions, each one have talked about increasing pricing to improve margins. Again, that's something that will certainly help with our pricing initiatives, if you've got every other carrier that's going out and trying to raise rates.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We'll see if there are any other transactions. Certainly, the market is very consolidated as you know, and we don't expect any new entrants in terms of just a new carrier. It's any changes have been new players by way of acquisition. We'll continue to watch and see how some of the new owners manage those other businesses.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

In the meantime, if that creates freight opportunity for us, that is typically what we see, is there becomes a little freight churn, and we either get freight directly or in some cases, just indirectly as the churn within the industry happens. We will continue to work with our customers, and if we are a common carrier with a customer that has got one of these other entities, our sales team is always in there trying to identify freight opportunities for us. In some cases, that is what creates a market share opportunity for us.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We have got multiple sources of how we win share, and we certainly believe that we have got a long runway for growth ahead of us, and we will continue to execute on that front. In regards to service center availability, we haven't necessarily seen anything at this point in terms of reducing the number of service centers from any of the other big public carriers. Certainly, we've got our eyes out and would be willing to look at any opportunities, because obviously in our long-term plans, we continue to have a pretty long list of areas that we want to expand to.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're at 248 service centers today, and I think that we've got a list of sort of 35 or 40 locations on our long-term plan that we want to continue to add to the network and support additional market share opportunities for us. If we have to build them, we will. That's what's been a bigger part of our plan in recent years. Certainly if existing terminals become available, we take advantage of those opportunities as well.

Allison Landry
Allison Landry
Senior Equity Research Analyst at Credit Suisse

Okay, perfect. Thanks, Adam.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Thanks, Allison.

Operator

The next question comes from Ravi Shanker with Morgan Stanley. Please go ahead.

Ravi Shanker
Ravi Shanker
Managing Director at Morgan Stanley

Thank you. Morning, gents. You guys continue to execute incredibly well in a good market. I'm a little surprised that you're stepping up the pace of the buyback here. Clearly, that's good return to shareholders, and that's awesome. Historically, you've been an entity that's really reinvested back in the business.

Ravi Shanker
Ravi Shanker
Managing Director at Morgan Stanley

Your stock, just on consensus numbers right now, is not particularly cheap. What's the messaging there? Do you think that you guys can become the first trucking company to break into the 60s OR, and so normalized EPS is just significantly higher than current levels, so the stock is much cheaper than we think it is? What's the messaging there on the buyback step up? Thanks.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Well, there's a lot to unpack there. I'll say this, since I started with Old Dominion in 2004, I've heard the story that our stock was expensive. Look at where we are today from a stock price standpoint versus where we were back in 2004. That's dependent on our continued ability to execute on our plan. From a buyback standpoint, we continue to look at the buyback program and our dividend program in terms of returning excess capital to our shareholders.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

I think that we've been clear that our first priority for capital spending is going to be capital expenditures and strategic investments that provide very solid returns on invested capital for us, and we want to continue to grow the business. In some years, that will be heavier CapEx than planned, and we've got the flexibility of the buyback program to look at what our capital needs for the business are, and to use it more or less in returning excess capital to our shareholders.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We think it's been a good program for us in the past. Again, our first priority is to continue to invest for growth, and that's what we've seen over the long term, and that's what we continue to expect. Greg mentioned that 50% growth, and keep coming back to this. I know we start thinking about short-term trends and things like that. Over the next 10 years, we talked about the past 10, but over the next 10, we continue to expect that the industry will grow above GDP.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We continue to have plans to expand our service centers and take advantage of market share opportunities and grow our shipment counts significantly over the next 10 years. It just takes continued execution of our business model that's been successful in the past, and we think that it will continue to be successful for us into the future, producing very strong returns.

Ravi Shanker
Ravi Shanker
Managing Director at Morgan Stanley

There can be no debate that you've executed so far. Thanks very much, gents.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Thank you.

Operator

The next question comes from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz
Tom Wadewitz
Senior Equity Research Analyst at UBS

Yeah. Good morning. I wanted to ask you a bit about the, I guess, the 2022 view and thinking about cycle impacts from truckload spillover. It seems like you're pretty proactive about the pricing and trying to keep the right quality of freight in your system.

Tom Wadewitz
Tom Wadewitz
Senior Equity Research Analyst at UBS

How do you think about the potential risk to 2022 tonnage if either freight growth slows down or if truckload capacity, if they finally get some traction on drivers, which I know is tough. Do you think of that as a meaningful potential headwind, or how do you think about just how much truckload spillover effect there may have been in 2021? It just seems like that could be a meaningful factor.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Tom, that's a good observation and the exact reason why we've taken the actions that we have to protect our capacity now to support our customers' traditional LTL shipments. Those truckloads spillover type shipments that can weigh 8,000 to 10,000 pounds. Typically, we manage those within our spot quote system. Spot quotes for us historically have been somewhere 3% to 5% of our revenue.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Right now it's less than 1%. We've got a truckload brokerage operation that some of our existing customers moving LTL shipments that have these larger opportunities for us. We can put through our truckload brokerage and provide a solution for them. We want to make sure that we're paying more attention to our traditional LTL shippers, that we're protecting our service and capacity for them as we continue to get feedback that they need capacity. Industry capacity is tight.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're hearing that more and more. It started probably a little bit sooner this year than I expected. We thought that we would hear that feedback, given what the sequential trends had looked like for us. It certainly come to us maybe a little bit sooner, at least the panic, if you will.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We want to make sure that we're protecting our customers and giving them what they need. There's no reason for us to tie up capacity with these transactional type loads that are here today and gone tomorrow. We want to make sure that we're doing the right thing and protecting the market share that we have that will be with us for the long term.

Tom Wadewitz
Tom Wadewitz
Senior Equity Research Analyst at UBS

Right. Okay. You think you're pretty well protected in terms of risk on truckload spillover going away in 2022, just because of some of the actions you've taken recently. Is that the right way to read it?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Correct. We've already moved it out, essentially, of our system, as evidenced by that reduction in the spot quote type of business that we have. We feel good about where we are and transitioning into next year and obviously, we have customer conversations every day, but continue to believe that there will be ongoing freight opportunity for us with traditional good paying LTL shipments.

Tom Wadewitz
Tom Wadewitz
Senior Equity Research Analyst at UBS

Oh, okay. Thank you for that. Just a follow-up question. Inflation and labor availability is such a big topic these days, and certainly seems to be affecting transports where normally we don't, in a different way. You seem like you're, I don't want to say immune, but that that's not having much impact on your business. Is there a bigger wage increase than normal coming potentially related to that?

Tom Wadewitz
Tom Wadewitz
Senior Equity Research Analyst at UBS

Is there maybe risk of higher dock pay, or have you seen some of that come in? How do you think about that inflation impact on your business? Perhaps just the jobs and quality of culture you have are a real differentiator that help you. Maybe if you could offer some thoughts on tight labor market and, is there an impact or a coming impact?

Greg Gantt
President and CEO at Old Dominion Freight Line

Yeah. Tom, no question. It's a tighter labor market than certainly we're used to. Of course, I've been here for a long time, and I don't ever remember the growth percentages in the past that we've got today. It's definitely a bigger challenge than it's ever been. There is a labor market out there.

Greg Gantt
President and CEO at Old Dominion Freight Line

As I mentioned in my prepared remarks, we've hired some, I think it was 1,100 in the second quarter, and we plan to continue to hire in the third quarter. There are folks out there. It is more difficult than it's been, and I think I've mentioned that on our last call or two. It's a little harder to acquire people than it used to be. We're having success. We're working extremely hard at it. I think I've mentioned that before. They're there.

Greg Gantt
President and CEO at Old Dominion Freight Line

You just have to work harder to get them, and that's what we're doing, and that's why we have had some success. As far as the dollars go, surely we have to respond based on the market. We give a wage increase every year, as Adam mentioned before. We give it in September, and we certainly plan to do that this year. It may possibly be better than it's been in the past. Yes, you have to respond, but you have to work where your needs are. You have to work to fix them. That's what we've been trying to accomplish. It's an ongoing effort for sure.

Tom Wadewitz
Tom Wadewitz
Senior Equity Research Analyst at UBS

Okay, great. Congratulations on the strong results. Appreciate it.

Greg Gantt
President and CEO at Old Dominion Freight Line

Thanks.

Operator

The next question comes from Chris Wetherbee with Citigroup. Please go ahead.

Chris Wetherbee
Chris Wetherbee
Senior Research Analyst at Citigroup

Hey, thanks, good morning. Maybe just picking up on the labor issue. You're adding, I think, another 1,000 in the 3rd quarter. What do you think your sort of quarterly needs might look like beyond that? I guess, is 4th quarter, maybe another 1,000 people when you think about where the volume is, where your resources are, and what's the right numbers or some catch-up that's going on right now?

Greg Gantt
President and CEO at Old Dominion Freight Line

I think you probably know our peak season is the third quarter, particularly in September. Hopefully, if we get the folks on board in the third quarter, I would expect those needs to really level off into the fourth quarter. The other thing that we have to deal with in the summer months, obviously, we have to cover vacations and those kind of things.

Greg Gantt
President and CEO at Old Dominion Freight Line

That pushes your needs up a little quicker too than sometimes you realize. Hopefully, we'll see. Who knows where the growth goes? If the growth continues to expand and how quick it expands, all those things will make a difference in our needs. Certainly, we'll try to respond however we need to.

Chris Wetherbee
Chris Wetherbee
Senior Research Analyst at Citigroup

Okay. No, that's very helpful. I appreciate that. Then just picking up on that growth dynamic. Maybe if we take a step back, you guys have talked a lot about sort of the longer term opportunity for growth in the business and sort of where you see your share opportunities. If we were to look out three to five years, how much more tonnage do you think you should be able to take on over that period of time?

Chris Wetherbee
Chris Wetherbee
Senior Research Analyst at Citigroup

Obviously, there's some secular dynamics that are benefiting the LTL industry, and you guys are certainly taking share and maybe some of these recent transactions, instead of potentially making the landscape a little bit more challenging from a share perspective, as Adam, you mentioned, maybe open up some opportunities for you. I don't know if you could just maybe take a step back and give us some bigger picture perspective on where you think this might go.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Chris, we haven't necessarily put out any specific targets necessarily for revenue growth and market share, certainly believe that given the tightness in the industry and generally the lack of investment in service center expansion by the other carriers, and we look at the public group, which is about 65% of the overall industry. We're just not seeing necessarily any significant investment out of that group as a whole, that creates more and more market share opportunity for us.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We're sitting at 10% to 11% market share today, and certainly believe that we were the biggest winner of market share over the last 10 years and believe we'll be the biggest winner in regards to market share over the next 10. However it takes us to get to where we're going, we'll see. We haven't, like I said, published that number. We certainly believe that the opportunity is there. We've got the capacity now and intend to continue to invest in capacity ahead of our growth and try to stay a couple of years ahead of the growth curve. We just don't necessarily want to publish anything specific, I guess, at this point.

Chris Wetherbee
Chris Wetherbee
Senior Research Analyst at Citigroup

That's helpful though. I really appreciate the color. Thank you.

Operator

The next question comes from Ariel Rosa with Bank of America. Please go ahead.

Ariel Rosa
Ariel Rosa
Analyst at Bank of America

Hey, good morning, guys. Congratulations on a nice quarter. I wanted to stay on this subject of wage inflation a bit. I think, if I look at compensation per employee, it was up about 10% year-over-year and recognizing there were some anomalous things with last quarter, but it also seems to have taken a pretty big step up sequentially.

Ariel Rosa
Ariel Rosa
Analyst at Bank of America

I wanted to think about third quarter, and as you think about the wage increase that's planned for September, maybe any kind of indication in terms of how that looks, either on a sequential or year-over-year basis. If there's some kind of targeted measures that you're doing in terms of targeted bonuses or certain geographies where you're really focusing on maybe taking wages up. Just some thoughts around that would be helpful.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Yeah. Just looking at the average salary, wages, and benefits number that we publish and dividing that by the average number of employees can somewhat be skewed, if you will. I think that's driving some of that quarter-over-quarter increase, thinking about the actions that we had to take last year, and then the actions that we're taking now.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

To try to give you a little bit more color, I can say that when we started this year, we talked about our core inflation being somewhere around 4% on a per shipment basis, excluding fuel. That included the normal 3% to 3.5% increase that we give. That's what we did last September. Certainly we will be giving an increase. We haven't announced that to employees yet, and so I want to hold back on sharing any color before it goes out.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

As Greg mentioned, we connect the success of the company with our employees' personal financial success and certainly feel that they will be rewarded for their efforts and for how well the company's performing. Looking into the second quarter in particular, though, and we kind of expected this, we did have an increase in some of our fringe benefit costs over the period. That fringe rate was quite a bit higher than where it was in the second quarter of last year and quite a bit higher, frankly, than where we were in the first quarter. That's some of the anomaly that comes along with the growth in employees.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Our employees have been working very hard, working more hours. As you add to your employee count, if you've got four employees that were working 50 hours a week, and now you got five that are working 40, that changes the dynamics. The same amount of hours are there to be worked, and the wage looks the same, but you've got the benefit cost for that fifth employee that increases there.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

That's something that we've seen historically when we're growing headcount, that you get a little bit of lag effect with those benefits. Some of that will continue into the third quarter as well. I'd expect that we might have a little bit higher fringe percentage rate than coming into the year I had targeted and believed we'd be somewhere around 34%. That is our fringe benefit as a percentage of salaries and wages.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We were a little north of that during the second quarter, and I expect us to be a little bit north of that as well as we transition into the third. We're offsetting. Those were obviously costs that we overcame in Q2, given the strong top-line revenue performance and the leverage that creates on other costs. We've got the base, a larger base of employees to thereby grow from.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

It's all good and it's all included. Our expectations will be included as we transition into Q3 and some of the comments that I made earlier about where we think that operating ratio might trend to. We will start to see as we get into the back half of this year, that core inflation start looking more on a per shipment basis, like what we'd expected.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Through the first half of the year, it looked a little different. We've actually in the second quarter, our cost per shipment, excluding fuel, was down slightly. Certainly seeing a big increase in fuel cost right now, but that will normalize a little bit more as we get into the back half of the year.

Ariel Rosa
Ariel Rosa
Analyst at Bank of America

Got it. That's really helpful color. Thanks for that, Adam. Just for my second question, I wanted to hit on, and maybe I missed this, but just in terms of, I know you usually disclose cargo claims ratios and on-time performance. I don't think I heard that earlier on the call and kind of in a related vein, I wanted to hear if having this kind of elevated purchased transportation expense or onboarding new employees, maybe how that's impacting service.

Ariel Rosa
Ariel Rosa
Analyst at Bank of America

I know there's usually a little bit of a transition period there. Just your thoughts around if having less direct oversight over freight as a result of outsourcing more line haul, if that's in some way impacting your service metrics or how you guys think about managing service to the level that you've expected given that you're outsourcing more of that freight to third parties.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Yeah. Certainly, when you lose a little bit of control, there is that risk that it can have a negative impact on service. As we talked about in prepared remarks, that our expectation, whether it's our employees or that of a third-party partner that we're utilizing to move the freight, the expectation is the same, that we want to give superior service to our customers.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

That's what we're always striving for. Certainly believe that we continue to show best-in-class service metrics. Our cargo claims ratio continued at 0.1% during the quarter, and that's really what we strive to do. It's the value proposition that we offer our customers, and it's something that we've got to pay very close attention to.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

When you have the control, if you will, over managing the employees and the freight and having the equipment, it's certainly a lot easier to continue to have each of our employees bought into the overall success of the company. They understand over the years, as we've improved our service metrics, what that's done in terms of the profitable growth that we've produced and are totally bought in to delivering the very best service to our customers. We want to continue to keep on that promise, if you will. I think every employee is continuing to be motivated by delivering the very best service to our customers.

Ariel Rosa
Ariel Rosa
Analyst at Bank of America

Great. Sounds good. Thanks for the time, Adam.

Operator

The next question comes from Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Todd Fowler
Todd Fowler
Director at KeyBanc Capital Markets

Hey, great. Thanks. Good morning. We're pretty long into an LTL call. I don't think that there's been a question on core pricing or core yield. Greg, I'll see if you'll entertain this one. Yields during the quarter ex fuel were up 10%. Obviously there's some impact there from mix and the lower weight per shipment. Do you have any comments just directionally on what you're seeing, the contract renewal environment?

Todd Fowler
Todd Fowler
Director at KeyBanc Capital Markets

I know you're not giving a specific number there. Is this an environment where contract renewals are still accelerating? As you think about the potential for some tightness in the back half of the year, is this a market that can sustain another GRI here this year, is that something that's more of a 2022 type phenomenon at this point?

Greg Gantt
President and CEO at Old Dominion Freight Line

Yeah, Todd, if you're talking about a GRI, we have no intentions of anything in the second half of the year. That'll be a 2022 event for sure. The environment has been favorable, probably more favorable than I can ever recall. Which is a good thing, as we've always done in the past, I'll say this, Todd, the renewals are probably a little better than we've experienced before. Okay? We're having some more success, as we've always done, we've addressed accounts on an as-need basis.

Greg Gantt
President and CEO at Old Dominion Freight Line

If we have needs to improve those accounts, we've addressed those needs and tried to make improvements accordingly. I don't think our strategy or our approach will change at all. That's what we'll continue to do, to try to be consistent and try to be fair with our customers.

Todd Fowler
Todd Fowler
Director at KeyBanc Capital Markets

Yeah. Got it. That makes sense. I would think similar to some of the earlier comments, that there's some tailwinds from what others are doing in the industry. Just as a follow-up on the weight per shipment here in the quarter. It's down about 4% year-over-year. It was down sequentially, and it sounds like that maybe that reflects some actions taken with some spot TL shipments. Is that roughly where the weight per shipment should settle out at this point? Or do you see that moving more either based on economic factors or specific mix issues within the network? Thanks.

Greg Gantt
President and CEO at Old Dominion Freight Line

Yeah. I would think so. It seems to have somewhat stabilized in the last couple of months, I would expect that trend to continue. Unless something changes with what we're doing with spot quotes, I don't anticipate that, not anytime soon. Adam may have something to add to that, That's where we are today.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

No, I think we'll continue to see in that 1,550 to 1,600 pound range, where we've somewhat settled now. It could move up and down a little bit from here, I think at this point, we're settled in for likely the balance of the year.

Todd Fowler
Todd Fowler
Director at KeyBanc Capital Markets

Great, understood. Thanks so much.

Operator

The next question comes from Scott Group with Wolfe Research. Please go ahead.

Scott Group
Scott Group
Managing Director at Wolfe Research

Hey, thanks. I'll try and be quick. Adam, can you just talk directionally about some of the components of that 35% revenue growth in July?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

I don't want to give too much just because it certainly can move around. I would just say that certainly the yield performance is remaining consistent. Some of the year-over-year change, if you will, in weight per shipment, we're trending down about that same 4%. You're seeing a similar type of change in the yield, and obviously that implies-- and that was around 14%, as you know. That implies what the tonnage number would be. We'll see where it falls in, but ±, it's just going to be somewhere around a 19% threshold.

Scott Group
Scott Group
Managing Director at Wolfe Research

Okay, great. In terms of the uses of cash, would you guys ever think about buying another LTL and then, or maybe with the buyback, if you wanted to do it in a full year like you've typically done in the past, would you think about using any? Debt on the balance sheet for the buyback? Thank you.

Greg Gantt
President and CEO at Old Dominion Freight Line

Yeah. I'll let Adam answer that financial question last. At this point, we certainly aren't looking to acquire another LTL. I'm not sure that makes sense. At the same time, if you go back through the history of acquisitions, certainly major ones, we haven't seen a whole lot of success. I don't think we want to wade into that at this point. We certainly did our share back in the day, but most of those are smaller tuck-ins and geographies where we had needs and those kind of things. Just our needs are different today than what they used to be, and at this point, we have no real strong appetite for that.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Yeah. On the buyback, we have no intention at this point of using debt to finance additional buybacks. We want to continue to use the cash that we have on hand, and we continue to expect significant cash flow from operations as we continue to see improvement there and despite the increases that we've had in CapEx, and certainly could have a big CapEx number next year as well.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We haven't really fine-tuned that. That will come later in the year. Based on demand trends that we see, I would expect that we'll have another pretty healthy year of CapEx. We just have a tremendous amount of free cash flow, and we're trying to return that to our shareholders. We've got a pretty nominal dividend, and just we'll continue to use the flexibility of the buyback program as we have in the past to return that excess capital back and maybe work down some of the cash balance that's on the balance sheet as well.

Scott Group
Scott Group
Managing Director at Wolfe Research

All makes sense. Thank you, guys. Appreciate it.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Thanks, Scott.

Operator

The next question comes from Bruce Chan with Stifel. Please go ahead.

Bruce Chan
Bruce Chan
Director of Transportation at Stifel

Hey, Greg. Hey, Adam. Thanks for the time here. Just wondering if you can remind me what your cross-border presence look like? I know we talk a lot about e-commerce when we think about some of these secular growth opportunities, but just wondering if there's anything on the nearshoring side that's meaningful, and whether you've seen any more demand for that cross-border capability, either north or south?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

We've got the services certainly to Canada, primarily. We've got services to Mexico and really consider Puerto Rico, Alaska, Hawaii, and so forth in our OD Global division as well. Canada is the biggest opportunity. We continue to see growth there. We don't have assets there. We've got a good 1 partner. That partnership in the regards to the business that we may have going north and they handle it or their customers that may have freight coming south has created opportunities for us. Certainly would expect some growth to continue there in that regard. It's a smaller element of business overall for us.

Bruce Chan
Bruce Chan
Director of Transportation at Stifel

Okay. I appreciate that. Just one last one here. Can you remind us of what your mix of 3PL business looks like right now? Do you have any meaningful plans to change that in the near future?

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

Yeah. It's about 20% to 25% of our overall revenue. A lot of our top 50 customers, we've got a pretty healthy mix of big 3PL accounts that are in there. We've seen growth last year, especially during the pandemic. As they were helping their customers out, we were continuing to get a good amount of freight coming out of those 3PL customers. We've got very good relationships. Most are strategic in nature. We don't have as many relationships with the 3PLs that are more transactionally minded and out trying to sell cheap rates because that's just not us and doesn't necessarily fit with our profile.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

I think when they're out selling value to their customers, I think they can help in regards to independently proving our value equation and looking at our on-time performance and our claims ratio in regards to inventory management and so forth, and how maybe paying for a little bit more upfront for Old Dominion service can deliver cost savings, if you think about things on a total cost of transportation standpoint for their customers. It's been a good independent source coming in to support revenue growth, and we'd expect that we continue to see some growth with them as well into the future.

Bruce Chan
Bruce Chan
Director of Transportation at Stifel

Okay, great. Thanks, Adam. Appreciate the call.

Adam Satterfield
Adam Satterfield
CFO at Old Dominion Freight Line

See you, Bruce.

Operator

The next question comes from Tyler Brown with Raymond James. Please go ahead.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James

Hey, good morning, guys.

Greg Gantt
President and CEO at Old Dominion Freight Line

Hey, good morning, Tyler.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James

Hey, just one quick question. I know the call has been long here. I want to come back to the equipment talk that you did up front and its role in the capacity equation. I'm just curious, but does this shift in e-commerce and serving these big distribution centers, I would imagine that that's driving more drop and hook requests, but does that change your trailing equipment needs fundamentally? Could that be an area of investment, or is that really not a needle mover?

Greg Gantt
President and CEO at Old Dominion Freight Line

Well, Tyler, at this point, it hasn't significantly changed our needs or requirements. Without a doubt, we have experienced some delays with some accounts in getting our equipment unloaded. We certainly try to manage those events when they happen so we can get our equipment back. It's just definitely been a challenge.

Greg Gantt
President and CEO at Old Dominion Freight Line

At this point, I don't think we've changed the ratio of trailing equipment to tractors that we typically look at to determine the needs of trailing equipment. We'll continue to look at that, but I think that's a very fair question. If those needs change, then we'll certainly address it. At this point, nothing significant.

Tyler Brown
Tyler Brown
Financial Advisor at Raymond James

Okay, perfect. Thanks, guys.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Greg Gantt for any closing remarks.

Greg Gantt
President and CEO at Old Dominion Freight Line

Thanks to all of you for your participation today. We appreciate your questions, and please feel free to call us if you have anything further. Thank you, and have a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Adam Satterfield
      Adam Satterfield
      CFO
    • Drew Anderson
      Drew Anderson
      Company Representative
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