Good day and welcome to the Saia Incorporated hosted Second Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Doug Col. Please go ahead, sir.

Thank you, Casey. Good morning, everyone. Welcome to Saia's second quarter 2021 conference call. With me for today's call is Saia's President and Chief Executive Officer, Fritz Holzgrefe. Before we begin, you should know that during this call we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and all other statements that might be made on this call that are not historical facts are subject to a number of risks and uncertainties and actual results may differ materially. We refer you to our press release and our SEC filings for more information on the exact risk factors that could cause actual results to differ. Now, I'll turn the call over to Fritz for some opening comments.

Good morning. Thank you for joining us to discuss Saia's second quarter. Our results represent another quarter of record financial performance here at Saia following record quarterly results in the fourth quarter of 2020 and also in the first quarter of this year. Saia second quarter revenues are a record $571 million, surpassing last year's second quarter revenue by 37%. Operating income grew by 132% to a record $82.9 million and our record operating ratio of 85.5% in the quarter marked the fourth consecutive quarter where our operating ratio was below 90. The 85.5% operating ratio is the single best quarter in our company's long history. Second quarter shipments per workday increased 15.3% and surpassed $2 million in the quarter, another record. Tonnage per workday increased 23.1%, reflecting weight per shipment that was 6.7% higher on a year-over-year basis. The strength in our shipment count was felt across all geographies and was achieved despite the impact that supply chain disruptions are creating for freight companies. We're actively recruiting and hiring across our network as we work to take care of our customer's freight needs in the face of a very tight labor market and lingering COVID-19 employee challenges. With all the record financial metrics posted in this quarter, I'm also pleased with the quality of service we're able to deliver for our customers during the quarter, while experiencing record volume and labor challenges. Our cargo claims ratio was a record 50.54% and we had a 97.7% on-time service standard. This performance is a testament to the talent and efforts of the entire team. Our customers increasingly recognize that we're providing leading quality and service and see we're focusing on reinvesting to maintain and further improve their experience. In many markets, we're offering hiring and referral bonuses to build our team in a very competitive labor market to support ongoing hiring initiatives. In the match to the cost inflation we're experiencing, we continue to ask our customers to share these costs with us. Our pricing challenges must include consideration of all these cost challenges. Pricing actions are not limited to base rate increases and in many cases an adjustment to market of various accessorial charges enables us to recoup our substantial investments in service. We continue to optimize our mix of business with an emphasis on customers that support and recognize our value proposition. The combination of these efforts is driving the positive pricing performance that we're achieving an overall yield excluding fuel surcharge improved by 5.7%. Revenue per shipment, excluding fuel surcharge increased 12.8%, benefiting not only from pricing gains but also from the 4% increase in length of haul and 6.7% increase in weight per shipment. Contractual renewals averaged 10.6% in the quarter. Ultimately, the improvement in mix and pricing fuels our revenue per shipment increase and is key to improving our operating margins, which drove our record second quarter financial performance. I'll now turn the call over to Doug for further review of the record results.

Thanks, Fritz. As Fritz mentioned, second quarter revenue was $571.3 million, up $153.2 million or 36.6% from last year. Revenue excluding fuel surcharge revenue grew 30.9%, with a combination of factors, including a 23.1% increase in tonnage per workday, a 5.7% increase in yield excluding fuel surcharge, and a 4% increase in length of haul. Fuel surcharge revenue increased by $37.8 million or 85.2% and was 40.4% of total revenue compared to 10.6% a year ago. Moving to key expense items in the quarter. Salaries, wages, and benefits increased 19.8% compared to last year, reflecting our January 1 wage increase which averaged about 3.5% along with higher overtime compensation and additional recruitment costs. Performance-based compensation is up meaningfully as well from the COVID-19 impacted second quarter a year ago. Purchase transportation costs increased by 136.6% compared to last year and were 10.9% of total revenue compared to 6.3% in the second quarter last year. Truck and rail purchase transportation miles combined were 80.4% of our total linehaul miles in the quarter compared to 9.2% in the second quarter of 2020. Salaries, wages, and benefits costs combined with purchase transportation costs were 58% of revenue compared to 60% in the second quarter of 2020 and 59.8% in the first quarter of this year. Fuel expense increased by 72% in the quarter while company miles increased 9.7% year-over-year. The increase in fuel expense was a result of national average diesel prices that continue to rise after the pandemic-related drop in the prior year, with average prices rising approximately 32% in the second quarter compared to last year. As mentioned, fuel surcharge revenue increased by 85% which helped offset the expense increase around fuel. Claims and insurance expense decreased by 5.3% in the quarter as accident-related expenses were down year-over-year, offset somewhat by year-over-year increases in insurance premiums. Non-recurring expense of $34.7 million in the quarter was 3% higher year-over-year but down sequentially from the first quarter as tractor and trailer deliveries have been lighter than our normal seasonal delivery pattern. Total operating expenses increased by 27.7% in the quarter and with the year-over-year revenue increase of 36.6%, our operating ratio improved 600 basis points from a year ago to 85.5% and was 440 basis points improved from the first quarter. Our tax rate for the second quarter was 24.3% compared to 18.3% last year and our diluted earnings per share were $2.34 compared to $1.70 last year. We anticipate an effective tax rate of approximately 24% for the remainder of the year. In the first six months of 2021, we made capital investments totaling $100.2 million. Capital expenditures on equipment in the first six months were below our forecast and some of our suppliers are seeing delays in component shipments and production has been behind schedule. We expect capital expenditures to step over the next couple of months as we take delivery of increasing numbers of tractors and trailers, and we still expect full-year 2021 capital expenditures to be approximately $275 million. Our balance sheet remains strong with $52.9 million in cash on hand and up to $300 million of availability through our revolving credit facility and additional outside borrowing sources. I will now turn the call back to Fritz for some closing comments before questions.

We're very pleased with the performance here at Saia through the first half of the year and a very busy second half ahead of us. We'll continue to focus on working with our customers, setting their expectations, meeting their expectations, and focusing on our operational execution in the second half while providing the quality and services our customers have come to expect. Maintaining and improving these levels will require continued investment in recruiting and retention, which most significantly requires us to continue to share these costs with our customers. While equipment deliveries have been slower than we would have hoped or planned, we continue to take delivery of both and we'll continue to do so through the end of the year. Although late deliveries have had operational cost challenges, we've been able to maintain service for our customers. The equipment will provide important flexibility as we continue our growth plans. Our average tractor age is four years, and the fleet is equipped with the latest clean diesel technology. We continue to seek opportunities to invest in next generation clean and efficient technology. In the second quarter, we began operating two all-electric Volvo tractors and more recently put into service five Freightliner CNG tractors. Getting these alternative energy vehicles into our fleet is important as we build our experience and knowledge base in the viability of exciting new technologies and position ourselves for broader adoption over time. As we have navigated the challenges of the last 12 to 18 months, we're sustaining a very high level of execution and demonstrable improvements across all areas of the company. Since the launch of the Northeast initiatives in 2017, we've added 25 facilities and relocated or expanded several others company-wide as we sought to establish Saia as a leading national LTL carrier. So far this year, we've opened two terminals, one in Maryland and another in Delaware. We plan to open up to five new ones throughout the remainder of the year. Throughout this expansion, we've been able to replicate our commitment to service and quality in new markets while enhancing it in others. Each expansion introduces some risk, but over time we have built a playbook that has allowed us to manage through these challenges while meeting and exceeding customer expectations. Our long-term planning is focused on continuing to build our national network to reach new customers and enhance service for our current customers. Looking into 2022 and beyond, we have identified key metropolitan areas where we can add service to our customers as well as expand our addressable market that supports our value proposition. We're focused on accelerating our pace of expansion to 10 to 15 locations a year. We feel quite strongly about the capabilities of our teams. We have proven in perhaps the most challenging times that Saia can provide superior service and replicate it. Accelerating our pace of expansion is not without risk, but we're guided by our experience to date. We've positioned our business for this opportunity, both financially and operationally and plan to accelerate the development. With that said, we're now ready to open the lines for questions, operator.

Thank you. The first question comes from Jack Atkins with Stephens.

Great. Good morning and congratulations on a great quarter, guys.

Thanks, Jack.

So I guess if I could maybe start, Fritz, I'd love to get your take on some of the revenue management initiatives that you guys are undertaking here. Obviously, the underlying LTL market is very robust. It’s been accelerated through the second quarter their two-year sort of tonnage growth stack maybe decelerated as the quarter went on. I'm guessing that's because you guys were taking very targeted actions to improve yield with certain types of customers. Could you talk about that for a moment, if you don't mind?

Absolutely, Jack. Thank you. I think the way we think about it in a couple of different ways. We've focused very long and hard over the years around our operational execution and providing great service and understanding our cost structure. One of the things that was going on throughout that is our sales force stays very close to the customer, understands what they need, what the values are, and when you're in a position like we have been where we've been executing very well, providing great service and quality during some very challenging times, we're in a position for our sales force to approach the customer and really look at the range of services we provide for them, be it limited access deliveries or hazmat delivery. All these things add cost. We focus on that, and if we do a good job with that, we feel very strongly that we need to be compensated for it. It’s got to be reimbursed. The responsibility we have is to execute for the customer. I think what you've seen over the last year is that as we've worked through a very difficult time, we have executed for the customer. They have seen that, and our sales force is in a position where they can really focus on getting that pricing. We look at it daily. We are looking at the freight mix, the optimal mix in the network, be it region or longer hauls. What’s important is because we have executed, our sales force is armed to make the approach to the customer and explain the costs associated with this business. We're going to do a great job for you, understanding that value proposition. They are in a position to accept higher pricing levels because they’re getting value for it. That continuous and daily focus is driving that, and what you saw in the quarter was the fruits of our labor intensified as we worked through the challenging supply chain environment.

Okay. Okay, that's great to hear. And I guess, Doug, a question for you. On the operating ratio as you sort of look forward. How are you thinking about that 2Q to 3Q progression? I would imagine you're going to be taking a lot more equipment in the second half of the year just because of the OEM delays. So maybe there are higher depreciation and purchase transportation costs as a headwind with some inflationary cost pressures. Could you just maybe walk through how we should be thinking about 2Q to 3Q operating ratio progression relative to normal seasonality, which seems like normally it's about a 100 basis points of degradation or so?

A couple of things there. You're right. When we go back and look at the sequential deterioration, usually influenced by a July 1 wage increase, which has been our history for many years. There will be a wage increase in the period. It’s not July 1, though; it’s pushed out into this quarter a little bit. Given the strength in the business, demand levels are still there. Our shipments per day in July historically step down a little bit, about 1.5% to 3% historically. We're not seeing that seasonality. Our shipment trends here in July look very similar to the run rates we exited in June. So good volumes. Yes, the depreciation costs are expected to step up sequentially, probably mid-single-digit percentage over the remainder of the year each quarter. But thinking about all that and the progress we're making on the pricing and revenue per bill side, productivity has been good. Our operations team has done a great job keeping the network in good shape throughout the last few months while managing the labor tightness. Our expectation is to try to hold the operating ratio flat from Q2 to Q3. We don’t see the wage increases as the usual annual move; it’s just pushed out a bit, and our pricing action is taking hold. On your earlier question, I appreciate the use of comparisons; last year was kind of a wacky year to compare against. I understand the two-year stack comparison, but the business hasn’t felt like that as we move through Q2.

All that's great to hear. Thanks so much for the time.

Thanks, Jack.

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

Hey, great thanks, and good morning. Doug, just for clarification to what you answered with Jack, you're saying that you think that the third quarter operating ratio could be flat sequentially with the second quarter operating ratio?

That's our goal.

Okay, good. I wasn't sure if you were saying constantly with the five-year with the second quarter. So, thank you for that. And Fritz, on your comments on accelerating growth going forward, 10 to 15 locations annually, based on your current base. I know that not all service centers are created equal. But to me, that's about mid-single-digit growth from a service center terminal count. Is there an algorithm to think about how you expect to grow tonnage in the context of that? And with that sort of growth, do you think that the business is at the size where you can absorb that sort of expansion and then still see a normal cadence of operating ratio improvement, assuming that the environment, of course, outside of cyclical factors is supportive?

Yes, thanks for that question, Todd. I mean, we start with our philosophy that our growth is about profitability. Over time, as we consider those incremental opportunities, we look back at our playbook and say we’ve learned how to do organic expansion. We feel like we can build that into the operating model. The long game here is to provide incremental service and reach customers, which we believe is a natural progression of developing growth around this. We will strategically focus on growing that operating ratio and ultimately capturing returns on investment. I don’t know what all that will mean for shipment growth or tonnage growth over time, but I think we’ll continue to see growth with economic development and our expansion. Our focus is on making sure we get a return on that investment.

Yes, that's helpful. And it's great color, and that makes sense on the kind of success that you had in growing into the Northeast. So just a follow-up on the near term then with the labor availability and the labor situation. How does that play out for the back half of the year in terms of potential constraints on short-term growth? And Doug, I understand your comments about that shipment levels remained strong, but how is the labor market playing into your near-term ability to grow into the back half?

I think we're in a position. We have a plan; we can execute on target to achieve our objectives for the second half of the year. However, at the same time we understand this is a challenging market. I think all the labor reporting you see particularly around industrial jobs, be it CDL drivers or even dock working jobs, it's incumbent upon us to provide competitive pay and benefits, and most critically, an environment where someone feels they can be successful and grow with the company. Without our 11,000 employees, we can have all the great assets, terminals, and technology, but it’s about people. We've emphasized that around recruiting and retention to help build the business, to continue the model that we've executed on, which is about replicating service. We think we can do that in the second half of the year. We have the playbook for it, but that doesn’t mean it’s not a challenge.

Yes, understood. Okay, thanks for the time this morning. We'll talk to you soon.

We'll take our next question from Amit Mehrotra with Deutsche Bank.

Thanks, operator. Good morning, everybody. Fritz, I wanted to ask about the operating ratio. Obviously, you're now in a new neighborhood, so to speak. Just wondering if you're here to stay and is this mid-'80s how we should think about the annual run rate as we look out to 2022? Also, I think you just pivoted a little bit in terms of accelerating growth in 2022 from a real estate footprint perspective. Typically, that leads to more of a transition period as you kind of grow into a higher fixed cost base. I'm trying to understand relative to about 100 to 200 basis points of annual improvement you’ve talked about at the higher end in a good market, which I think you should have in 2022. So, can we see that type of growth in operating ratio improvement in 2022 versus what you do in 2021, or are you maybe pulling forward some of this given the environment today and the investments you're making next year?

Thank you for the question. We view our growth as somewhat unique. The terminal growth and our Northeast expansion are crucial elements. The Northeast expansion represents new territories for us, and we are proactively building out the necessary infrastructure. This is a significant step forward. As we look at expanding geographically, our next focus will be on adding second and third terminals in our current markets. With this growth strategy and by utilizing our existing infrastructure, we anticipate ongoing improvements in our operating ratio over time. We are not satisfied with an operating ratio of 85.5; we believe there is further potential for enhancement. Our ongoing priority is to consistently execute and replicate the quality and service across our new terminals, which will bolster our sales force and enhance our value proposition.

Okay, that’s helpful. And then just as a follow-up, you guys have made a lot of progress on your revenue per bill, which has been a huge focus for you in narrowing the gap versus peers, and it's certainly showing up in the operating ratio. You made tremendous progress to date. I'm trying to understand if there’s further improvement from where we are today above and beyond market and cycle dynamics. When you look at your business, how you understand the cost structure on a shipment-by-shipment level, is there more idiosyncratic opportunities specific to Saia to increase that revenue per bill or have you maxed out and now it’s about filling in the network and gaining density?

Amit, I encourage you to benchmark Saia’s service against the rest of the national carriers; we do well and our claims ratio is better than just about anybody. That’s a great differentiator. Providing incremental service to new markets while enhancing it in others is key to our approach. Our sales force now has more touch points with customers, and they will get compensated for replicating that quality and service. I don’t see a slowdown on the revenue per bill side; in fact, it may improve over time as we establish a national basis. There’s really no reason for Saia to be a discount in the market.

And I'd add that with all our work around pricing and an improvement in revenue per bill, for all of that service that Fritz spoke of, we still see ourselves at a discount to our closest competitors. Yes, we've improved our pricing, resulting in a cost-plus component when thinking about pricing. But there's also a market component based on what service levels are being paid for, so that's the opportunity we see.

Very good, thank you very much, everybody. Appreciate it.

Thanks, Amit.

We'll take our next question from Jon Chappell with Evercore ISI.

Thank you. Good morning, Fritz. Back in April, you talked about 10% to 15% spare capacity in the network, but pinch points in certain terminals. I think we're all well aware of the labor issues and even equipment delays, but the most important is your network. How is the spare capacity today? And what's your comfort level on the ability to take on new business in the second half, just based on the doors you have today and your growth plan for the next six months?

I think we have the opportunity to do that, but our first and primary objective is finding the customers that truly value what we're doing for them. We can handle the incremental opportunities as they become available. However, as you know, there are different categories of capacity in an LTL setup—could be drivers or doors—which all influence this. I would tell you, at different terminals, we likely don’t have much spare capacity while we are trying to address those. The first way to address that is ensuring we understand the mix of business that goes through these assets and the service levels we provide. So, while we have spare capacity in the network, we have more capacity to change freight where we think there is a better opportunity to provide that service and we can be reimbursed for.

Okay, that makes sense. And then, second is on the pricing environment. Pricing to justify service is something you’ve mentioned a few times. You also mentioned intensifying accessorial charges. I’m wondering if we look at the really strong result you put up in 2Q, how much of that is core sticky pricing versus accessorial charges that may or may not ebb and flow as the tightness in the entire supply chain eases over time?

From our view, accessorial charges are a cost of doing business. If a customer needs that incremental service, we should get paid for that, so those costs need to be covered in our business. We think that pricing environment is quite sticky, and we look forward knowing that in the long game, we need to get paid at market levels. Understanding the value we provide is crucial for customers as the tight environment should continue to foster those conversations.

That's great to hear. All right. Thanks, Fred.

Our next question comes from Tom Wadewitz with UBS.

Good morning. I wanted to ask more about the ramping up of terminal expansion. It seems like a significant step and a positive development. How do you view the overall pace of network capacity expansion? Are you focusing more on establishing new facilities, or are you also expanding existing ones? It's a nuanced question, but I'm curious about your perspective. Additionally, should we expect a higher rate of tonnage growth with this increased emphasis on terminal expansion? It seems logical, but is that an accurate way to approach it?

Yes, it's a little bit of both. In our legacy network, we have opportunities to expand facilities, even some of the ones that we’ve recently purchased or built. Regarding our pace of incremental facilities, it’s about growing our addressable market and enhancing service. As we think about this in terms of tonnage, we tend not to set specific tonnage targets internally. It’s more about identifying opportunity, focusing on our service, and ensuring we provide great returns from that growth.

Just to be clear, if you're expanding 5% a year, is that number a higher number, or are you focusing more on new facilities and less on existing?

We are doing the same for existing facilities. As we enhance our current markets, there will be related capacity growth. Then you add the 10 to 15 incremental facilities on top of that. Some of them will be big, some of them will be small, but they all introduce the opportunity to touch new markets and provide great service.

Okay, so it is a faster pace of expansion and presumably a faster pace of tonnage growth with that. All right, thanks for your patience and the questions. Appreciate it.

Thanks, Tom.

Our next question comes from Scott Group with Wolfe Research.

Hey, thanks. Morning, guys. Just sticking on the expansion of the network. Is this 10 to 15 a year going out, or is this sort of a one-year 10 to 15 bump? And then any thoughts, Doug, on what this means for capital expenditures next year? And would you think about doing any of this through acquisition instead of organically?

Thanks, Scott. I think this is the rate of growth we are targeting for the next few years, provided the environment is supportive. We look back at the 25 terminals we’ve opened since starting in the Northeast; that’s a lot of experience we’ve developed. We like the idea of organic expansion. There’s always the opportunity for tuck-in acquisitions, but that organic pace is good for us. I think we will assess the environment each year and maintain growth where it makes sense. The capital expenditures related to our growth strategies would reflect these decisions.

Yes, on CapEx, I’d hope that it steps up in the next couple of years. We’re thinking about a 13% to 14% revenue pace currently, but hopefully that steps up to 17% or 18%. We’d like to own the terminals that we add in key markets. So that’s kind of what we’re thinking about.

Very helpful. And then we got good color from one of the other LTLs yesterday about the percentage of their shipments that are LTL spot quoted. Any color you can give us there?

Sure. The spot quotes are generally less than 0.5% of our shipments. Heavier weighted shipments are about 1% to 1.5% of our daily shipments and are down in July, at run rate probably down 15 to 20% compared to what we were running in June. So, some of those are truckload spillover, and they're down a little bit. However, that's about the magnitude of them.

Maybe I didn't ask; I mean, they’re trying to say that they're trying to deemphasize this truckload spillover to prevent any risk for next year if the truckload market loosens or you get a bit more truckload capacity. Are you guys, it sounds like maybe you're commenting in July that you’re doing the same thing?

Yes. Some of our pricing action is certainly targeted at trying to hold the growth down on those shipments that just aren’t typical LTL or are not our core customers. We’re not targeting that as a growth area for shipment growth.

Great. Thank you, guys. I appreciate it.

Our next question comes from Jason Seidl with Cowen.

Thank you, operator. Fritz, Doug, hope you guys are well this morning. I wanted to talk a little bit about your renewal rates. Obviously, you were talking about some of them were very targeted at 10.6%; that's a very healthy number to post in the quarter, the most I remember in recent times at least. What percent of the business did that encompass? And do you think that that will stay at those elevated levels for the remainder of the year?

I mean, it certainly seems to accelerate, not just for us. We’ve seen the acceleration in Q1 across the public LTLs on what they reported. It looks like it increased again in Q2. Most of our national account customers renew on an annual basis, but it’s not like it's a specific bid window every year; there’s a normal cadence to it.

Got you. That makes sense. Wanted to jump on a follow-up. And this relates to something somebody asked before. But you know, with the strong cash balance, I mean, talking about stepping CapEx up in the out years at 17%, 18% of revenue. Given your current margins and trajectory, that probably still means even at those levels, you're generating some cash flow. What are your thoughts on utilizing the cash sort of beyond your free cash flow in 2021?

I mean we’re investing at a pretty healthy clip across our discussions around terminals as well as equipment and technology. We’ll be looking for opportunities to put some capital to work where we can realize gains in productivity, safety, or efficiency. In this cyclical business, I think being free cash flow positive is a good position to be in. We don't anticipate a lot of discussions around the dividend or share buybacks. In the cyclical nature of our business, we’d prefer to invest back in the business for now.

Okay, fair enough. Appreciate the time as always. And nice quarter.

Thanks, Jason.

Our next question comes from Jordan Alliger with Goldman Sachs.

Yes, hi. Just a question on purchase transportation and sort of your thoughts around that specifically. How hard is it to ensure that you have that third-party capacity these days? And then secondly, I'm just curious, do you typically pay like a spot rate or do you have more relationships with contractual deals?

Yes. In terms of relationships, we try to move as much of it as we can with core partner carriers. We were in the spot market a bit more in Q2 than we typically are, which explains some of the cost there. However, we used it effectively. We wouldn’t have been able to serve our customers if we hadn't. It’s pretty tight out there, and we would use more rail if we could have gotten it. Everybody is in the same boat with demand and labor.

It's important to maintain our service standards when using purchase transportation. This is a core part of our value proposition. If we rely on a PT partner, that performance needs to be consistent with what we offer the customer because it reflects our overall service quality. Yes, it costs more, but we don't compromise on service.

Thank you.

Thanks, Jason.

We'll take our next question from Stephanie Moore with Truist.

Hi, good morning. Hi, Fred. Hi, Doug.

Morning.

Wondering if you could provide just an update on what you're seeing in terms of some of the profitability in your newest terminals, specifically in the Northeast. Just given the strong volume trends you're seeing and obviously, the progress building up density, kind of where those terminals are trending now more so versus the corporate average or how we should think about that. Thank you.

Yes. We’ve been saying for the last few months that the Northeast is just one of our regions now. We're going to stop breaking out specific Northeast detail. But the Northeast region is performing nicely profitable now. While we don't break out which regions perform above or below the corporate average, we are making great share gains there. Customers trust us with their business as we grow, and we’re pleased with the margin progression up there.

We'll take our next question from Tyler Brown with Raymond James.

Hey. Good morning, guys.

Good morning, Tyler.

So, I want to come back to freight characteristics. But it seems like you guys are maybe the longest and heaviest you've ever been. I’m curious how much of that is a function of the market? Or has that been a driven focus by your sales effort? And do you think that this length of haul and this weight per shipment can kind of hang around this neighborhood?

As we become more of a national footprint, I think those statistics will continue to shore up. We continue to deploy data analytics to find optimal freight for our network. This will evolve over time, but our focus is on maximizing freight that operates best in the network. Those characteristics could be different across parts of the country, but we expect to firm them up as we build a diverse national network.

Right. And so what's important is, this revenue per bill excluding fuel is kind of more of a jumping-off point, I guess you...

Absolutely, we continue to expect improvement.

Okay. And then on the 10 to 15 service centers, frankly, how much line of sight do you have here? I mean, 10 to 15 is a very big number for anyone.

Yes. We have a pretty robust pipeline that we work on. We know that there will be some wins and losses. The pipeline is in excess of that 10 to 15. The end game is about the pipeline over the next couple of years. Sometimes they turn into opportunities that take longer to develop. But it’s our goal to continue focusing on investments in our real estate pipeline to deliver the 10 to 15 next year and in subsequent years.

Okay, perfect. Thanks, guys.

Our next question comes from Ari Rosa with Bank of America.

Hey, good morning. Doug and Fritz, congrats on a nice quarter here. So, it sounds like customers have been responsive or responded well to rate increases. Just wanted to get some color on the nature of those discussions. Historically, at what point do customers start to push back on those? If customers start seeing some inability to pass on prices to their end consumers, do they come back to you and start to get a little more aggressive? Or is it just a function of market supply and demand with LTL carriers?

Well, I think the one observation I’d make is that no customer anywhere is ever happy about a rate increase. However, in a challenging environment, when we deliver great execution and meet expectations, we are strengthened in our negotiations. Our customers see the value we provide during these times. Our relationships have grown solid, and we can point to our execution and quality while asking for appropriate rates. They know we often operate below market, so if we present the right service levels, acceptance of the price increases becomes easier.

Got it. Understood. And for my second question, you have laid out a compelling case as to why you think you can continue to improve the operating ratio. However, your competitors are also reporting record levels in terms of margins. And with that, we might be seeing peak freight conditions. Looking 12 to 18 months down the road, do you think this environment can sustain itself? And what are the implications for industry-wide margins?

When we look at the industry, we see that the performance across competitors provides a roadmap for us. We need to achieve those best-in-class service levels and they set a target for us. We believe that even in a slowdown, we've been disciplined with our pricing and have shown we can generate revenue that reflects the value we bring. Our focus on executing quality service opens us up to opportunities to serve customers best, regardless of the market conditions.

Got it. Very helpful. Thanks for the time.

We'll take our final question from Bruce Chan with Stifel.

Hey. Good morning, gents. Appreciate you squeezing me in here. Just wanted to get a couple more if I could. On the purchase transportation side, could I get your thoughts on what you think a normalized level or target level is as a percentage of revenue in your network? Is that back in that mid to high single-digit range? And is there any inflation to think about as you grow the terminal count?

I would say in general, I think it may migrate lower as a percentage of our miles in linehaul; not sure how quickly it will reach low double digits in this environment. We expect when building out our network based on better density, our team has optimal freight management vis-a-vis our competitors in this space. We do expect cost trends will improve as our operational efficiencies build.

Okay, fair enough. And then just the final one here, Doug. You talked about pricing action, and you also mentioned some of the puts and takes with fuel. Maybe you could give us some thoughts on how you're feeling about the surcharge tables right now, and whether you see any need for adjustment as you move through customer conversations?

The surcharge that we all use as a hedge is in line with our peers and is kept pretty steady against national average diesel prices. The fuel surcharge mechanism does not always go lockstep with fuel price changes. I think overall it’s a good hedge and allows us to recoup added costs of investments around fuel, but we will continue to monitor those rates as necessary.

Great, fair enough. Thank you, guys. I appreciate it.

Thanks, Bruce.

This concludes today's question-and-answer session. I will now turn it back to Fritz Holzgrefe for closing remarks.

Thank you, everyone, for calling in. We appreciate your interest in Saia. We're excited about the performance we saw in the second quarter and are looking to replicate that in the third quarter as we build upon that success and accelerate the growth of the business over the coming years. Thank you again for your time and have a safe day.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. And you may now disconnect your phone lines.