Greetings and welcome to the ArcBest Third Quarter 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will have a question-and-answer session. As a reminder, this conference is being recorded on Tuesday, November 3rd, 2020. I will now turn it over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead.

Welcome to the ArcBest third quarter 2020 earnings conference call. Our presentation this morning will be done by Judy McReynolds, Chairman, President, and Chief Executive Officer of ArcBest; and David Cobb, Chief Financial Officer of ArcBest. We thank you for joining us today. In order to help you better understand ArcBest and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risks. For a more complete discussion of factors that could affect the company's future results, please refer to the forward-looking statements section of the company's earnings press release and the company's most recent SEC public filings. In order to provide meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release. We will now begin with Judy.

Good morning everyone and thank you for joining us for our third quarter earnings report. At ArcBest, you will hear us talk about our vision. We'll find a way, and that appropriately describes what this year has been like for us and what our employees are seeking to accomplish. I am incredibly proud of our team for fighting through a pandemic, weathering the associated recession and being ready to respond to increased demand as our customers' businesses quickly come back online. 2020 is an extremely unique year and the challenges everyone faced going through the first half of the year sit in contrast to what has played out over the last few months. 2020 is also filled with good examples of customers utilizing our integrated solutions to their advantage. Our transformation into a provider of choice and a leader in the logistics industry is purposeful and also responsive to the complexities faced by our customers. An indication of our effectiveness in serving customer needs is our third quarter in October sequential revenue trends, which are some of the best in our history. We closed out the third quarter with 32% of our revenues from Asset-Light solutions and on a preliminary basis in October, that percentage further improved to 34%. Our October progress is even more encouraging when you consider that our Asset-Based business is growing at 9%. We are proud to serve our customers always, but especially during these volatile times. In addition to improving revenue trends, we are encouraged that our third quarter consolidated non-GAAP operating income increased 20% year-over-year and 82% sequentially and represents one of the best third quarter performances in our history. The solid execution by our employees is enabled by a number of technology and analytics advancements that increased operational efficiencies and improved responsiveness to customers and carriers in the channels they desire. David and I are looking forward to going through the third quarter results in more detail with you today. During the third quarter, our Asset-Based segment benefited from sequentially improving economic trends and the resulting positive impact on our customers' businesses. Many of them are returning to more normal shipping patterns and during the recent quarter, we were able to effectively serve their needs. Although average daily shipments in the ABF network increased sequentially, they decreased versus last year's third quarter. On a year-over-year basis, our higher weight per shipment was driven by several factors, including the improving economy, changes in customer mix, the addition of larger LTL shipments designed to fill available empty capacity in our system, and increased demand for our household goods moving service. At this time, we are not seeing an impact from traditional truckload shipments spilling over into our LTL network as these truckload shipments declined on a year-over-year basis. As we experienced during the most severe period of the pandemic, our e-commerce business was strong in the third quarter compared to the previous year, as consumers continue to purchase a variety of products that they receive and use in their homes. Strengthening trends in housing were another positive factor that generated both year-over-year and sequential quarterly increases for U-Pack, our consumer residential moving service. The pricing environment remained solid and rational during the recent quarter. Though our total third quarter Asset-Based revenue per hundredweight was below the prior year, the decrease was related to shipment and account mix changes and lower fuel surcharge. The increase in shipment size, I mentioned earlier, was also a factor in reducing our total yield metric; but that was offset by the positive effects of an increase in average revenue per shipment. Our traditional pricing discipline, combined with our evolving use of lane-specific information that helps in adding needed shipments in the right place at the right time, forms a solid foundation for our Asset-Based business that we lean on, especially during uncertain times like we've experienced this year. Our operations team has executed extremely well during a period when we have managed through an entire freight cycle in a matter of only six months. The resulting ups and downs are trying to match labor resources to business levels during such extreme swings in shipment counts has certainly presented its challenges. We had to quickly reduce labor resources in the second quarter and then rapidly increase them as business returned in the third quarter. I am very proud of how well we've maintained year-over-year improvements in most all of the important operational metrics and measures that we closely follow. As customer business levels began to return and the need for transportation services increased during a period of tight carrier capacity in the marketplace, demand for our Asset-Light services contributed to revenue growth and higher operating income. Despite a slight decrease in total average daily shipments during the quarter, greater revenue per shipment highlighted by increases at expedite, truckload, and managed, drove the topline revenue growth. Because of market conditions, purchase transportation costs were a higher percentage of revenue, thus pressuring margins. However, efficient cost controls enabled by technology advancement in all other areas of the business resulted in an increase in operating profit. Grand expedite benefited from higher demand associated with our customers' need for reliable, timely transportation services and from the environment created by challenges they experienced in securing the equipment capacity they must have. Our truckload brokerage was also a positive part of the third quarter revenue growth, but the challenge of matching customer charges with rapidly increasing mileage rates for carrier capacity pressured truckload margins. As many of our customers are emerging from the worst of the pandemic's impact on their businesses, we continue to have opportunities to help them navigate the changing trends in their supply chain and in their need to service their customers in unique ways. As a result, growth in Managed Transportation services was another positive contributor to Asset-Light revenue and profit improvements in the recent quarter. The year-over-year revenue growth in our managed business, so far this year, is significant and is on top of the strong growth we experienced in this area last year. At FleetNet, a reduction in both roadside repair and preventative maintenance events, primarily resulting from lower demand contributed to reduced third quarter revenue compared to last year. Reduced event count also contributed to lower operating income during the quarter. Next, I would like to ask David Cobb to go over the earnings results and operating statistics.

Thank you, Judy and good morning everyone. Let me begin with some consolidated information. Third quarter 2020 consolidated revenues were $795 million compared to $788 million in last year's third quarter, which was flat on a per day basis. On a GAAP basis, we had a third quarter 2020 net income of $1.11 per diluted share. This compares to $0.62 per share last year. As detailed in the GAAP to non-GAAP reconciliation table in this morning's earnings press release, our adjusted third quarter 2020 net income was $1.22 per diluted share compared to $1.02 per share in the same period last year. ArcBest's third quarter 2020 effective GAAP tax rate was 24.9% and on a non-GAAP basis, the effective tax rate was 26.2%. We currently expect our full year 2020 GAAP tax rate to be approximately 25%, while the effective rate in the fourth quarter may be impacted by items discrete to that period. Full details of our GAAP cash flow for the third quarter are included in our earnings press release. At the end of September, our cash and short-term investments balance totaled $351 million. Our total liquidity, including our cash and borrowing availability under existing facilities was $644 million. Our financial covenant ratios under our credit facilities improved during the quarter and continued to be in a solid position. You'll recall that in March, as a proactive measure to increase our cash position and to preserve financial flexibility at the beginning of the pandemic, we borrowed an additional $225 million that consisted of $180 million from our credit facility and $45 million from our accounts receivable securitization facility. In July, we repaid the $45 million borrowed on the AR securitization, and in August, we paid back the $180 million on the credit facility. In late September, we paid additional $40 million that eliminated all of our borrowings under the AR securitization. As a result of these actions, our total debt at the end of the third quarter 2020 was $292 million, which included $70 million on our credit revolver, no borrowings on our AR securitization, and $222 million of notes payable, primarily on the equipment for our Asset-Based operation. The composite interest rate on all of our debt was 2.9%. Combined with our cash balances, we ended the third quarter with net cash of $59 million compared to net cash of $41 million at the end of the second quarter, an improvement of $18 million. We made treasury stock purchases during the third quarter and have repurchased over $5.5 million of our stock so far this year. These purchases, combined with our quarterly dividend enhanced our shareholder returns. Our Asset-Based third quarter revenue was $562 million compared to $566 million last year, a per day decrease of 1%. Asset-Based quarterly total tonnage per day increased 1.2% over last year's third quarter. By month, for third quarter, Asset-Based daily total tonnage versus the same period last year decreased by 3.9% in July, increased by 3.7% in August, and increased 4.5% in September. Total shipments per day in the third quarter decreased by 3% compared to last year's third quarter. Third quarter total billed revenue per hundredweight on Asset-Based shipments decreased 1.8% compared to last year and was impacted by freight mix changes and lower fuel surcharges. Excluding fuel surcharge, the percentage decrease of billed revenue per hundredweight on Asset-Based LTL-rated freight was in the low single-digits. On Asset-Based customer contract renewals and deferred pricing agreements negotiated during the quarter, the average increase was 2.5%. Pricing on traditional published LTL-rated business, excluding fuel surcharges, and this piece that does not include transactional LTL-rated shipments, increased by a percentage in the mid-single-digits. On an adjusted basis, our Asset-Based third quarter operating ratio was 92.4%, an 80 basis point improvement versus the 93.2% in 2019's third quarter and a 200 basis point sequential improvement compared to this year's second quarter. Earlier this year, in response to a rapid decrease in business levels related to the pandemic, we took decisive actions to reduce costs that included laying off many of our driver and freight handling personnel throughout the ABF Freight network. As we move past the worst of the business declines that occurred in April, we began experiencing rapid sequential monthly business increases, especially during the May through August time period. As a result, we have undergone overall staffing challenges in the Asset-Based network, particularly in certain specific locations. During the third quarter, in order to maintain customer service levels, we needed to increase our use of outside resources in both line haul the local city pickup and delivery operations, thus increasing purchase transportation expenses. But we're seeing success in hiring the people we need. Moving forward, we would expect that customer business levels and our employee resources will continue to stabilize relative to each other and that our use of purchase transportation will moderate accordingly. For October, preliminary Asset-Based statistics versus last year are as follows: Asset-Based billed revenue per day increased 9%; total tonnage per day increased 10%; total shipments per day increased 1%; the total billed revenue per hundredweight decreased approximately 1%, again impacted by lower fuel surcharges and freight mix changes including the effect of heavier shipments. Excluding fuel surcharge, pricing on traditional published LTL-rated business, which does not include transactional LTL-rated shipments, increased in October 2020 by a percentage in the low single-digits compared to October 2019, while total weight per shipment is up 9% in October, reflecting strong demand for our household goods moving business. Our LTL-rated weight per shipment increased 11%. This reflects strategic conditions of heavier LTL shipments in certain lanes. The profile change is driving a lower revenue per underweight metric in the midst of a rational pricing environment. In recent years, the historical average sequential change in ArcBest Asset-Based operating ratio in the fourth quarter versus the third quarter has been an increase of approximately 200 basis points. In total, our data revenue in our combined Asset-Light businesses increased 5% versus last year's third quarter, reflecting a revenue increase in the ArcBest segment and lower revenue at FleetNet. The total Asset-Light business operating income was $5.8 million in the third quarter compared to operating income of $3.6 million last year, with the increase primarily due to increased total business levels, particularly in our expedite business. In addition, operations were more efficient, benefiting from cost controls and use of data and technology. For October, Asset-Light revenue for the ArcBest segment excluding FleetNet, is 31% higher on a preliminary basis compared to the prior year month of October, driven by high demand for our ground expedite and truckload brokerage services, resulting from tight equipment availability in the current market. So far in the month, purchased transportation expense is a greater percent of total revenue in the Asset-Light business, which will result in overall margin compression for the month when compared to October a year ago. Regarding our consolidated results, the year-over-year comparison of consolidated operating income was impacted by expense accruals for certain nonunion performance-based incentive plans, which were higher by $8.5 million compared to the prior year quarter. The increase is due to improved results, but primarily reflects the timing of recognition as the first half of the year was impacted by the COVID-19 pandemic on operating results. Because of the strong third quarter results, more incentive costs were appropriately recognized during the third quarter of this year compared to historical patterns. We attribute our success during 2020 to the dedication and adaptability of our workforce and the ArcBest culture that unites our people behind a shared set of values. We recognize the sacrifices our employees have made during 2020, both personally and financially, to serve our customers through the pandemic and find a way to solve their changing needs. We have continued to reevaluate our cost savings actions related to the pandemic, as the economic recovery has progressed, and our financial results have become more certain. This morning, we announced that ArcBest will be providing one-time discretionary payments to nonunion personnel with a 15% wage reduction incurred by our nonunion exempt employees during the second quarter of 2020 and to provide a bonus to non-union hourly employees whose hours were reduced during the same time period. We recognized $7 million of expense in the third quarter, while $4 million will be accrued in the fourth quarter for these payments. This morning, we filed an 8-K that included our third quarter 2020 earnings release along with an exhibit that provided some additional information about our current quarterly financial results, along with our recent business levels and our future expectations on certain financial metrics. Now, I'll turn it over to Judy for some closing comments.

Thank you, David. What a difference six months has made. As people all over the country make their ways to the polls today, I can't help but think about what it means to cast a vote and what an honor it is to be the recipient of one. In a very similar way, shippers and capacity providers do the same thing when they choose to do business with ArcBest. They choose ArcBest because they know they are going to get a good customer experience that includes solutions for all their logistics needs. Regardless of how unique a shipper situation may be, we have access to the right capacity and the will to find a way to get their goods moved wherever they need to be and when they need to be there. The same can be said for our capacity providers who trust us to match them with the loads they want when they want them. This focus on doing what is best for our customers is part of our customer obsession, and it is ingrained in the culture we have built here at ArcBest. It is also a driving reason behind why I am so optimistic about what the future holds for this company. Tremendous opportunity exists for us to sustain the momentum of the third quarter and continue to profitably grow our company by deepening our customer relationships, utilizing data and technology in our operations, and integrating innovative solutions in our services. It is the strength and abilities of our workforce and our leadership team that will seize upon this opportunity for growth as we head into 2021. And now I'll turn it over to David Humphrey to conduct our question-and-answer session.

Okay, Keith, I think we're ready for some questions.

Our first question is from Jordan Alliger from Goldman Sachs. Please go ahead.

Yes, hi morning everyone.

Hey Jordan.

On the cost side of the equation, I'm just wondering, if you could talk a little bit about some of the sustainability controls. I know you have to bring back people, but sort of exclusive of that. And as you look ahead to 2021 and the operating ratio, one assumes that the bulk of the industrial manufacturing recovery still lies ahead. How do you think about margin progression as we look into next year or maybe said another way, can we improve upon what you've already done thus far this year?

Well, Jordan thanks for the question. We certainly always strive to improve upon what we're currently doing. And I think the thing that has been really interesting to watch as we've seen this year unfold is just the flexibility and adaptability of our employees and just the resources that we provide to customer needs in different environments. And so that's particularly encouraging when you think about what next year holds because we don't always know what that will be. And that's something that we constantly talk about at the company, just how difficult it is sometimes to know where things are headed to, but you commented about what's going on in the manufacturing sector, and we are encouraged by that. I think yesterday's manufacturing PMI index was a positive. And typically, when we look out four to five months, that's impacting our results, and that's encouraging. And then also, we've commented on this call about the positives that come with the housing environment improving, and we are seeing sequentially some good trends on the retail side, although I know there's going to be some difficulty with some businesses there, but the e-commerce trends we're seeing are good as well and so we've got all that backdrop going on. And at the same time, I think within the business, we're seeing more opportunity for greater visibility of just the units of work that our employees are doing and how to better manage that or optimize that. And then the coordination that we see of the needs in the Asset-Based network or with our carrier partners to be able to match that up with the business that we have opportunities for with customers is really at a heightened level, and I'm encouraged by that as well. So, we're constantly working to try to improve and we see a lot of opportunity to use the foundation that we've laid here to do that, as we move forward into the next several months.

I have a quick follow-up. The increase in tonnage year-over-year in October is clearly impressive. However, as we look ahead to November and December, I'm trying to understand whether this reflects a typical trend or an unusual one for tonnage during these months.

Well, I'll take the first part and then David, I think, will have something to add. I mean, the October, when you compare that to September, the trends there for, I think, revenue shipments and tonnage are maybe the best we've had in a long time and maybe ever. And it's just a really, I think, interesting environment with certain areas strengthening. And again, some of that is because of the decline that you had in the second quarter in this pandemic recovery period, but I'll say that. And then, I think David will probably talk about some of the comparisons back to last year.

Yes, I think we had some generally easier comparisons, and when looking ahead to November and December, November is projected to be down about 11%. Does that sound right, David?

Yes.

In tonnage. Yes.

In tonnage, yes. I'm sorry. Yes, there is a lot of luck that could happen. Obviously, there is an election going on and then the pandemic, but we are encouraged by the momentum that we are seeing right now.

Okay. Thanks a lot.

Appreciate it.

The next question is from the line of Jason Seidl from Cowen. Please go ahead.

Thank you, operator, Judy, David, David. Everyone good morning.

Hey Jason.

Hi Jason.

This builds on what Jordan mentioned. Judy, you pointed out that this might be the best October ever. Traditionally, looking at a sequential basis, you never reach the same total tonnage in the fourth quarter as you do in the third quarter, at least from my analysis over the past 20 years.

Right. I think that would be.

I'm not saying it, but you mentioned that the normal sequential move in operating ratio is up 200 points. However, I don't think we're going to see that again, considering your tonnage levels and the fact that you accrued $7 million for employee payments in the third quarter, while only $4 million will be accrued in the fourth quarter. How should we think about a logical move in the operating ratio from the third quarter to the fourth quarter? To me, it doesn't seem like it will be 200 basis points or worse, given current trends.

I appreciate your optimism, Jason. It's encouraging to see the revenue trend we're observing in October and if that momentum continues. For instance, July revenue per day was down 6% compared to last July, so we're starting off in a good place. The revenue per shipment trends are favorable, but there are many uncertainties related to the economy, potential COVID impacts, and the political environment. However, as you pointed out, I noticed some of the accruals we have, and overall, I think we have some good momentum.

I was looking for some direct insights. Additionally, I want to examine, conceptually, where your transportation purchases stand, and I appreciate your input on that. Many brokers have noted that the third quarter has been particularly challenging, citing a significant decline in the transactional market impacting their contractual business. As the spot rates stabilize and do not experience the same sharp increase as they did in the third quarter, will this support margins in that sector for the fourth quarter compared to the third quarter?

In the Asset-Light business, I believe there's potential for growth as we are able to adjust our capacity pricing to align with market pricing for our customers. This could happen.

Yes, I was considering the factors that can either ease or tighten capacity. One aspect I find intriguing is the distribution of vaccines and its timing, which remains uncertain. While we know that our ground expedite business may play a role in this, it got me thinking about how this could affect overall capacity tightness, especially in the fourth quarter. It’s an interesting consideration. In our Asset-Light business, we are focused on deepening our existing customer relationships and exploring new opportunities, which we are at different stages of with various customers. A mature relationship may function differently compared to a new one. As we expand, particularly in truckload, I anticipate continued pressure on margins, although in expedite there is potential for improvement. Nonetheless, unique challenges stemming from the pandemic give me a sense of cautious optimism about our prospects.

And Judy, do you guys have a contract to move the vaccine?

We are not a direct provider, but we can offer capacity for that. We are currently in discussions with various distributors and customers, and there are still many uncertainties regarding the timing and strategy. I keep this in mind when considering our ground expedite business and our preparedness for it, as well as the potential overall impact on capacity.

I think we are all aware that we're a source of capacity for that. We are in conversations with different distributors and customers, and there's still a lot of unknown about the timing and the plan, but I remain mindful of that when considering our ground expedite business and our readiness for it, as well as the overall impact it could have on capacity.

All right Jason.

Take care guys. Appreciate it.

Thanks a lot.

The next question is from the line of Jack Atkins with Stephens. Please go ahead.

Great. Good morning everybody. Thank you for taking my questions.

Good morning Jack.

Hey Jack.

Hey Judy, hey David, hey David. So, I guess, Judy, going back to your comments in your prepared remarks about the productivity gains and the investments that you guys have made there in automation to drive improved network efficiency. I mean, when I kind of strip out the $7 million in bonus costs from the third quarter, you guys are kind of getting back to that third quarter 2018 OR at a lower tonnage level. So, can you maybe kind of walk us through where you are in terms of those automation and productivity investments? And sort of what's to come in 2021?

Yes, I mean, I think when we step back and look at the Asset-Based business and what has transpired, we've been building network optimization software for the last two years, and we completed certain phases of that in the fourth quarter of 2019, and we're starting to see that in the numbers, whether it's light lane, software or load point planning. Those kinds of projects have really helped us, and we've got more of those in the hopper as we move forward. The interesting thing, too, is just the close work with yield on some of this transactional LTL business really has been responsive to customers and the channels they want to do business; but for instance, in the third quarter, it helped us reduce empty miles by about 16%. And it's also helped our city route density. And again, I commented earlier about the productivity improvements, which were, to some extent, from this, but also, I just think our software and our tools to more tightly manage the activities there has helped us. We introduced a mobile dispatch system that was implemented late in 2019. And it's helping us to better communicate with our drivers through messaging and automated alerts, and it's also improving our customer experience. So, we have really seen some positive impact from those kinds of things. And again, I'm most pleased about the coordination of our yield decisions and addressing customer opportunities while at the same time, creating operational efficiency. All that has played out in a year where we've had some extreme ups and downs in business because of the pandemic.

Absolutely. It's really encouraging to see that. So, I guess my follow-up question, if I could ask about yield trends. When I look at the commentary on contractual rate renewals, it was a little bit of a deceleration there versus what you saw in the second quarter versus some peers that saw an accelerating trends and obviously, everything we're hearing about capacity in the LTL that works out there that's very tight. Could you maybe talk about what you're expecting to see in terms of contractual renewals as we move into the fourth quarter and into 2021? Would you expect to see that number accelerate?

When we assess the situation in the third quarter, it's important to consider the challenges faced by our customers. Many businesses were either closing or not operating normally during the second quarter. As a result, we chose to be patient and awaited the natural timing of contractual renewals that typically occur in the second quarter. Some of these renewals were delayed or moved to later in the year, and many companies are currently not in a strong position. Additionally, we have implemented various price improvement measures over the years to ensure that we are compensated fairly for the trailer space used. The impact of the pandemic has also influenced these negotiations. Therefore, I wouldn't draw significant conclusions from the third quarter's results in isolation; it's essential to evaluate our performance over a longer time frame. I believe you'll agree that we maintain a disciplined approach in this area, which I expect to continue. We regularly assess the profitability of our accounts and opportunities, while also recognizing the value of long-term customers, which is reflected in our third quarter results.

Jack, we'll move this along.

Thank you, Judy. Thanks David.

Thanks a lot. Appreciate it.

The next question is from the line of Chris Wetherbee from Citi. Please go ahead.

Thanks. Good morning guys.

Hi Chris.

So, wanted to touch maybe on the resources and headcount in particular. So, David, I think you mentioned, that you are generally able to sort of hire the people you wanted to. And I guess, maybe getting a little bit more specific for 4Q. Can you give us a sense of sort of what you need for the fourth quarter in terms of headcount and maybe how that kind of factors into that sort of historical progression seasonally of OR from 3Q to 4Q?

We experienced some elevated demand to manage. The business volumes have been quite volatile, with both significant declines and rapid recoveries. Additionally, the resurgence of business isn’t uniform throughout our system. There are certain geographic areas that require more resources and have a stronger return in business volume than others. This imbalance across our network necessitates the use of external resources to meet customer needs in those regions. It’s also become easier to find suitable personnel in different locations. The pandemic has certainly created challenges for our usual recruitment processes, and we will continue to assess the situation.

Yes, at our peak, we had about 1,000 employees laid off, but that number is now around 100. One interesting statistic we gathered is that 72 service centers experienced double-digit growth in allocated weight, while 53 service centers saw double-digit declines. Over 50% of our locations had significant year-over-year fluctuations in business levels. As we look to hire, there are many areas where we need staff, but in places that experienced declines, the need is not as strong. Currently, business levels have surpassed our hiring rates, which is evident in our purchase transportation utilization. A lot of this imbalance has created challenges that we are addressing. Luckily, we can utilize rail and road resources to help us find balance, and we expect to see improvement over time as we continue to hire and align with our customers' needs.

That's right. Those would be more viewed as offsetting. As we were able to do that work internally, it may actually present an opportunity for us to lower the overall cost per shipment.

Yes. It's certainly more stable and more ideal.

Hey Chris, we'll move this along.

Not a problem.

Appreciate it.

The next question is from the line of David Ross from Stifel. Please go ahead.

Yes, good morning everyone. I'll try to avoid Humphrey hook.

The clock is ticking.

I know, I know. I want to just talk about the network. Now, that it's not a downsizing exercise and tonnage is growing again. Where does the facility count stand today? And do you think that you're going to be up or down on number of terminals in 2021?

I believe there's relative stability in our current count of about 241 facilities. After nearly 100 years in business, we take a longer-term view on these matters. We are prepared to invest in resources if we see sustained business growth, but we need to wait until the situation becomes more settled through this pandemic. Being in growth mode is important to us, and we still have room for expansion. We are currently operating at lower tonnage levels compared to what we've seen in similar systems. However, the variations in growth and decline across different locations mean that some areas are tighter than others, which also factors into our decision-making.

So, David, as we look at the 2021, is there any need for, I guess, lumpiness in the CapEx? Any preliminary thoughts on facility expansions that may take that CapEx number higher than it otherwise would be or should it be more of a replacement year with the fleet?

Yes, that's a good question. We will provide an update on our CapEx plans for 2021 when we release our fourth quarter results. At the start of 2020, our original CapEx estimate was around $135 million to $145 million. However, at the beginning of the pandemic, we adjusted that downward, and our current expectation is around $90 million to $95 million for this year. We aim to maintain our replacement cycle for revenue equipment and continue with other maintenance and strategic investments, positioning it at a higher level than in 2020. The estimate we provided at the beginning of the year is a starting point; we will finalize those plans considering the current tightness in certain areas, with real estate always being a significant factor in developing our CapEx plan.

Excellent. Thank you.

Thank you, man. We'll see you.

The next question is from the line of Ken Hoexter with Bank of America. Please go ahead.

Hey, good morning.

Good morning Ken.

Hi Ken.

So, just maybe following up on the capacity question from Chris, but if you maybe talk about what capacity you have to absorb that 10% growth in October, and if that continues, how do you adjust? I just ask that because Dave noted that PT cost will subside. And then why is truckload down, given the tight spot market? I thought you get the slowdown from that in the PT cost?

Yes, that's an interesting question. When we look at our labor planning, our shipments haven't increased as much as the tonnage or weight, which helps our resources manage that effectively. We've already discussed the higher purchase transportation costs, which include both rail and road power that we're using. This is an important consideration as we progress, but I believe we can manage it well. Could you remind me of the second part of your question?

The truckload in this kind of market, doesn't it usually get the spillover?

Yes, the truckload. Yes, it is an interesting thing that we're experiencing here. We're actually seeing, I think, an opportunity to have more LTL transactional shipments, which we are focused on and bringing on some new relationships and then also servicing some existing ones and I think it really is more a story of the availability of that than it is the truckload spillover. So, we just wanted to be sure to point that out as we're looking at year-over-year and we just see that the more optimized answer for us because of the network needs that we have and the empty capacity needs that we needed to fill was to utilize those LTL transactional shipments, which we feel good about the overall results that that had and how that coordinates well with the published business that we have.

And then real quick for Dave Cobb, your thoughts on data tech investments. Are we seeing that scale if CapEx is staying low here?

I believe Ken's question was regarding the expenditure on technology investments.

Yes, we are fully invested in that area and intend to maintain our investment. We are seeing positive results from the investments we've made over the years. Therefore, we will continue to invest in both software and hardware, which will be reflected in our capital expenditures as we plan for 2021.

Yes. One thing I would mention is that our technology spending as a percentage of revenue is comparable to that of our competitors. However, what is noteworthy is that a larger portion of our spending is directed toward strategic investments rather than just maintaining operations. Our comparisons indicate this. We are very pleased with this situation, as we believe it significantly contributes to our advancement.

Thanks a lot Ken.

Appreciate. Thank you very much.

The next question is from the line of Scott Group from Wolfe Research. Please go ahead.

Hey. Thanks. Good morning guys.

Hi Scott.

Hi Scott.

So, I just want to quickly go back to that last point about truckload spillover. I thought the October update is that TL spot shipments were up double-digits. Is that not truckload spillover?

You're talking about our in the Asset-Light piece of the business?

I thought, I'm just reading in the double-digit percentage increase in truckload rate at spot tonnage moving in the Asset-Based network in October.

Well, that is more of our U-Pack business. The U-Pack business that we do is truckload rated.

So, yes, that's what's driving that.

Okay. Judy, I have a couple of broader questions. Looking at the last decade, the LTL business has not achieved an operating ratio better than 97, but now we have seen three consecutive years with ratios between 93 and 94. What do you believe is a new target range for your LTL margins over time? Additionally, I came across a presidential memorandum regarding pensions and I am curious about your perspective on it and what would be a favorable outcome for your company.

Yes. Well, I think that's certainly a part of that OR range. We know for sure, but one of the things that we've noted is that we have had nearly 350 basis point improvement in the operating results for the Asset-Based business since 2016's recession. And I think we would all agree that this period here is certainly more difficult to navigate than what was there in 2016. So, that is really, I think, noteworthy for us and does, I think, create a new range of thinking on the operating performance for the Asset-Based business. And I mentioned earlier some of the visibility and management tools and optimization as well as the coordination with yield strategy in terms of the best business that we could have in the network. And I really think that that's a strong contributor to the improvement there and we've always had an opportunity for more consistent results. And I think that's what I'm very focused on is trying to create greater consistency, whether it's quarter-to-quarter in terms of seasonality in the business or if it's in the cycles. And I think that's my objective. And I think if we were to accomplish that, I think we could see further improvement in the operating performance for the Asset-Based business. And then on top of it, it would be more consistent. And again, technology, analytics advancements, visibility and then great execution, all of that comes together as a part of that story.

Okay. Thank you.

Thanks a lot Scott. Appreciate you.

The next question is from the line of Todd Fowler from KeyBanc. Please go ahead.

Great. Thanks and good morning.

Morning Todd.

Hey Todd.

Hey good morning everyone. Just on the thoughts on pricing and really kind of dovetails in with what you just talked to Scott about on being more consistent. Because you guys have done just a really good job throughout this cycle in being disciplined with pricing. How do you think about the range of contract renewals over the course of the next cycle? Is it something where maybe it's not as high as what we've seen in the past because you've been more consistent? Or is there still the opportunity to go out and get high single or low double-digit contract renewals on some of your freight? And then if you could also just dovetail in some thoughts on the GRI. I know you guys typically don't need, but is this an environment where we could see a sooner GRI, just given some of the freight dynamics? Thanks.

When considering the contractual renewals, it appears that being in the high single digits would be quite unusual based on historical data. While we've made significant progress over the years, particularly in comparison to pre-2017 and the cubic minimum charge changes we've implemented, our current situation combines favorable business dynamics that work well for us and our network while staying responsive to customer needs. Looking ahead, many businesses are not operating at their ideal profit margins and will need to keep logistics costs manageable. This is why I favor our strategy, as it allows us to offer a range of solutions tailored to specific circumstances that can help reduce logistics costs for our customers while also securing the necessary compensation for our services. However, I understand that logistics remains a critical component for our customers, which they are keenly focused on, especially given the considerable increases they have observed. This year is predicted to bring significant disruptions, so they will be striving to improve their situation. That’s why I value our integrated solutions; they not only provide greater consistency in our customer relationships, which is beneficial for us, but also help us achieve our goals of being customer-focused while enhancing our cost efficiency and profitability.

Yes. I think you can hear the interest in Judy's voice from the customer's perspective, which reflects our vision and is the reason we believe in the long-term sustainability of our program.

Yes. Okay. That helps. And then just any thoughts you care to share on a GRI would be great? Thanks.

Yes. The GRI, yes, David, do you want to comment about that?

Yes, just as a reminder, we had a 5.9% back in February, around February 20.

It's late February.

Yes, this year. In early February, we conducted another one or the one before that. Our yield team continuously monitors the customer relationship aspect of this to determine the appropriate timing for a General Rate Increase. We typically won't be the first to announce in the marketplace, and at this time, we haven't made any decisions regarding that timing. We will assess input from our sales team and their conversations with customers. As Judy mentioned, considering all the disruption our customers are facing is important in these decisions.

All right, fair enough. Thanks for the time this morning.

Thank you.

Thanks a lot Todd.

The next question is from the line of Stephanie Benjamin with Truist. Please go ahead.

Hi, good morning. Hi Judy, hi David, hi David.

Hi Stephanie.

Hi Stephanie.

I wanted to discuss the improvement in the Asset-Light margin. It seems you have shown efficient cost controls, especially considering the increased transportation costs. Could you explain how sustainable those cost controls are as we approach the fourth quarter and into 2021? Additionally, I know there have been many efforts on the Asset-Based side to enhance the margin profile, but I would like to hear about what's happening on the Asset-Light side. Thank you.

Yes, I would say that what you observe is a reflection of our technology and the systematic approach we are taking with the digital tools we've implemented. This is beneficial for us, and our goal is to reduce the transaction costs associated with those loads. It’s encouraging to see progress, but we still have a long way to go. We are working towards a completely touchless back-end transaction process and have made some advancements, though we still need to improve. Shipment visibility and automating tracking for our customers and carriers, as well as electronically connecting carriers with our loads, are all initiatives that have progressed, but...

Yes, I have another example worth sharing. We are utilizing AI to read and categorize emails, which allows us to respond to them more quickly and enhances the customer experience. For instance, if an email is related to a required document, we can deliver that without any human intervention. This represents our efforts in automation or at least in empowering our team. However, we still firmly believe in the importance of human involvement in our customer relationships. We are exploring various strategies to better support our team and to let technology handle more routine tasks, while ensuring that human intervention remains available for more complex situations.

Yes. Attracting more shipments is an area we are also aiming to grow. We have made some progress in this regard by obtaining customer quotes and booking them through our APIs and our Arcb.com connection. We hope to advance in this area as well.

Our understanding, too, of customers and the channels they want to do business in is advancing. And we're trying to direct our resources in an appropriate way.

We see a lot of opportunity there for that piece of the business to grow.

Got it. Really appreciate all the color. Thanks so much.

Thanks Stephanie.

Okay, Stephanie. Thanks a lot. Well, listen, that's all the folks that we've got lined up for questions. So, I guess that ends our call. We want to thank you for joining us this morning. We appreciate your interest in ArcBest and this concludes our call. Thanks a lot.

That will conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.