Earnings Call Transcript
Saia Inc (SAIA)
Earnings Call Transcript - SAIA Q1 2020
Operator, Operator
Good day, and welcome to the Saia, Inc. Hosted First Quarter 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I now would like to turn the conference over to Mr. Doug Col, Saia's Executive Vice President and Chief Financial Officer. Please go ahead, sir.
Douglas Col, CFO
Thank you. Good morning, everyone. Welcome to Saia's First Quarter 2020 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.
Frederick Holzgrefe, CEO
Good morning, and thank you for joining us to discuss Saia's results. I'd like to start today's call by giving a word of thanks to the Saia employees across the country who worked tirelessly over the last couple of months to serve our customers and whose efforts have enabled Saia to do our part in delivering essential goods in this very difficult time. From the start, we have focused our efforts on keeping employees and customers safe. As the potential impact of COVID-19 became apparent, we adjusted our operations to adapt to the developing realities. In a matter of days, we redesigned and implemented new social distancing and focused operating practices throughout our network. The changes allowed us to fill our role as an essential business while protecting drivers, dock workers, mechanics, and support staff as they safely served Saia customers. Our sales and general office functions have largely been moved to remote office environments. While focusing on the company's long-term potential, we've had to make a difficult decision to furlough approximately 16% of the workforce while also reducing hours across the company. Performance compensation plans have been suspended, and executive compensation plans reduced. At the same time, we recognize the significant impact that this pandemic has on our employees, and we provide additional paid time off benefits to support those that may need to care for a friend or family member. Nonessential spending has been reduced or eliminated where possible. Business levels have changed dramatically since mid-March, and our commentary and outlook will be colored by the impact COVID-19 has had on the economy and general freight levels. However, we will highlight the important steps the company took during the record first quarter and thereafter. Going into the year, our business plans in 2020 were focused on execution and leveraging our network investments that we made in the last several years. In the midst of the challenging current environment, I'm pleased to report we did post record first quarter results. Revenue of $446 million and operating income of $38.8 million were both first quarter records. Our operating ratio improved by 170 basis points from the first quarter of last year to a record first quarter low of 91.3%. Similar to what other freight companies have reported, volumes were good for the first half of March before a rapid decline on a year-over-year basis for the second half of March. Typical seasonality usually indicates volumes accelerating through the end of March and stepping up again in April, but that was not the case this year. Despite the weakness in late March, shipments per workday for the quarter still grew by 2.3% versus last year. And with an improvement in weight per shipment, tonnage per workday rose by 4%. In terms of pricing, it appears the rational approach taken by LTL carriers over the last several years continues. Our contractual renewal rates rose by 4.6% in the first quarter, down just slightly from the 5.4% rate we achieved in Q4. In early February, we implemented a general rate increase of 5.9%. For the quarter, our yield as measured by revenue per hundredweight rose by 3.1%. Keep in mind that reported yield is a by-product of pricing and mix. The mix component includes class of freight, weight, and length of haul. The combination of positive pricing, heavier weight per shipment, and longer length of haul all combined to boost revenue per shipment by 4.9% to $242. I'd like to now highlight a few operational achievements in the first quarter. Strong leadership and operational leadership combined with technology enhancements made in the past year were the key factors in helping us show improved productivity in both our dock and city operations on a year-over-year basis in the first quarter. On the docks, our optimization tools, which provide real-time performance tracking visualizations, rolled out across our network in 2019. It increases our ability to set realistic expectations for our freight handling professionals and measure their success in real-time against engineered standards. Also rolled out last year, our new inbound planning tool enables us to build better routes and create density across our delivery operation, minimizing miles run in city traffic as a productivity enhancer and cost saver. Through our continued efforts at network simplification, we also saw a small improvement in both the empty mile percentage and load average, despite having a larger service network than a year ago. In the quarter, we maintained strong customer service levels and achieved our standards on both pickup and delivery metrics. Our cargo claims ratio of 0.7 improved from 0.83 in the fourth quarter, with the improvement driven by continuous training efforts, particularly with our 2019 hires. Finally, in early March, we opened a new terminal near Burlington, Vermont, our 19th terminal in the Northeast since we began our multi-year expansion in 2017. Overall, I'm pleased with our results and execution in the first quarter. We believe the steady cadence of execution provides a solid foundation to continue to make operational improvements or, as is the case in the current pandemic challenge environment, better manage productivity while providing a compelling service for Saia customers in our expanding geography. With those highlights addressed, I'll turn the call over to Doug for a detailed review of the first quarter results.
Douglas Col, CFO
Thanks, Fritz. First quarter revenue was $446 million, up 8.7% over last year. The first quarter this year included one more workday than last year, so on a per workday basis, revenue rose 7%. Revenue benefited from a stable pricing environment, and our LTL yield rose 3.1%. Also, as Fritz mentioned, we have implemented a general rate increase of 5.9% on February 3, which typically impacts about 20% to 25% of our business. Fuel surcharge revenue increased 8.5% and was 12.8% of total revenue compared to 12.9% a year ago. Operating income of $38.8 million was 35% higher than last year, and our operating ratio of 91.3% improved by 170 basis points. Moving now to a few key expense items, I can offer a little bit more color on the quarter. Salaries, wages, and benefits rose by 8.3%, reflecting our average employee count being approximately 4% higher than the prior year. Our July wage increase was approximately 3.5% last year and continued inflationary healthcare costs. As a note, we have 10 additional terminals in operation this year than at the beginning of the first quarter last year. Purchased transportation costs increased 5.8% with one extra workday in the period. As a percent of total revenue, purchased transportation costs were 6.7% compared to 6.9% in the first quarter last year. Fuel expense fell by 6.1% in the quarter despite the 4.8% year-over-year increase in company miles as national average diesel prices were approximately 5% lower throughout the quarter than in the same period a year ago. Claims and insurance expense rose by 9.3% in the quarter, reflecting normal volatility in that expense line and higher premium costs versus the prior year. Depreciation expense of $32.6 million in the quarter was 22% higher year-over-year. This is a continuation of the trend we have seen over the past few years as we've grown our terminal network, invested in equipment to lower the age of our fleet, and made meaningful investments in technology. Overall, operating expenses grew by 6.7% in the quarter, and with revenue growth of 8.7%, we improved our operating ratio. Our tax rate for the first quarter was 23.7% compared to 19.3% last year. The increase is primarily related to executive stock activity. We expect our full year tax rate to be 24% to 25%. First quarter diluted earnings per share were $1.06 compared to $0.85 in the prior year. In the first quarter of the year, we generated $51.3 million in operating cash flow compared to $30.4 million a year ago, and we made capital investments in the first quarter totaling $107 million, with the majority of that related to new tractor deliveries. We've deferred the delivery of a substantial portion of our new tractors until later in the year as we manage our fleet size to current volumes and remove older tractors from our fleet. Our average tractor age is now less than 5 years. The lower age of our fleet has a benefit of better fuel mileage, better reliability, and also reduced maintenance expenses. Our average fuel economy in the first quarter improved by 3% from last year to 6.9 miles per gallon. At March 31, 2020, total debt was $235.8 million, and inclusive of the $46.9 million cash on hand, our net debt to total capital was 18.3% compared to 17.2% at the end of March last year. In 2020, net capital expenditures are now forecast to be between $200 million and $225 million. Outside of our committed equipment purchases this year, we are taking a very measured approach to all of the capital spending. We are evaluating all expenditures and determining what are needs and what are wants. Some investments that were planned for 2020 have been deferred until we have more clarity on the economic outlook. We believe our balance sheet is strong with the aforementioned $47 million in cash on hand and more than $300 million of availability through our revolving credit facility, including an accordion feature in that facility and also additional outside borrowing sources. Before turning the call back to Fritz for some closing remarks, I'd like to provide a few details on our actions taken to date to face the challenges brought on by the COVID-19 pandemic and the anticipated impact those actions will have on our financial outlook for the remainder of the year. On April 1, we offered all hourly full-time workers an additional 5 days of paid time off and 1 additional day for our part-time workers in light of COVID-19. This action was an effort to make sure that all of our employees were in a position to take needed time off for health issues or those of family and friends. We believe this action will result in approximately $10 million of additional benefits costs over the remainder of the year. Additionally, we are incurring monthly expenses for health and safety-related supplies for items such as masks, hand sanitizers, spray sanitizer, and gloves as needed by our field workforce to safely interact with each other and our customers. On the cost savings front, we developed a multi-pronged approach to manage down our labor costs. In April, we offered retirement incentives as well as a voluntary leave of absence plan. Through a combination of these actions, furloughs, and hours reductions, we've taken our active daily average workforce down some 16%. Lastly, on April 1, we suspended our 401(k) match and all incentive compensation plans and other executive compensation as well. With that said, I'll now pass it back to Fritz for some closing comments before we move to Q&A.
Frederick Holzgrefe, CEO
Just to emphasize our quarter, we're particularly pleased with our results from the first quarter. And I think it speaks to the capability of our business and what the operating potential is. Clearly, we are in an uncertain time right now, but we continue to operate and focus on profitability and maintaining the company's position such that we can benefit when we do move past this pandemic, which we will. With that, I'd like to open it up for any questions that folks may have.
Operator, Operator
Our first question will be from Todd Fowler with KeyBanc Capital Markets.
Todd Fowler, Analyst
I guess, maybe to start, if you can provide a little bit of color about what you're seeing now into April. I'd be curious, both on the tons per day side. And then one of your competitors talked about some change in shipment profile. And I'm curious what you're seeing as it relates to weight per shipment and kind of the mix going through the network at this point.
Douglas Col, CFO
Sure. Before we get into April, I want to go ahead and give the shipment in tonnage and weight numbers for the first quarter by month, and then I can give you a little bit of color on April to date. In January, our shipments were up 8%, tonnage was up 7.7%, and weight per shipment was down 0.3% at 1,304 pounds. In February, our shipments were up 1.5%, tonnage up 0.4%, and weight per shipment down 1.1%, though sequentially, the weight in February was up 2 pounds at 1,306. In March, our shipments were down 2.5%, tonnage was positive up 3.7%, and weight per shipment was up 6.4% to 1,380 pounds. So far in April, our shipments are trending down about 17%, tonnage is down about 13% as weight per shipment continues to look solid; it's up 4.7% at 1,337 pounds. In terms of what we're seeing, I mean, as Fritz mentioned, March started off pretty good. The normal seasonality from January to February wasn't there. That was a bit unusual, but the weight numbers started to improve early February, then we started to see better shipments. And then like Fritz said, a pretty steep fall-off in the second half of March. So that's continued into January as you can tell by the numbers I gave, shipments down about 17%. For us, field and national isn't down in the low teens, maybe 13%, 14%. Our 3PL business, which is obviously a smaller portion of our business, we're seeing shipment count there down 30% plus month to date. So no real change in the trends that we've seen over the last few weeks.
Todd Fowler, Analyst
Doug, that's really insightful and exactly what I needed. It sounds like your team was able to respond swiftly to the situation by implementing furloughs in early April. Considering how you've adjusted the cost structure to maintain margins, the performance in the first quarter was impressive. What are your thoughts on the potential margin profile for the second quarter, especially in light of the changes in the environment you observed late in March and into April?
Frederick Holzgrefe, CEO
Yes, Todd, the best answer I can give you is that we are very focused on maintaining profitability in the business. We are committed to ensuring our balance sheet is strong enough that when this situation changes, we will be ready to seize market opportunities. The level of uncertainty makes it challenging to forecast next week, let alone the entire quarter. Keeping that in mind, we have a plan that we will follow, and as fluctuations occur in the business, we will respond with the goal of maintaining our margins and positioning ourselves to capitalize on the situation. Recently, we have experienced some ups and downs, but there may be signs of stabilization. Markets are starting to open up for us and for everyone, which is encouraging, but it’s still unclear how things will unfold over time.
Todd Fowler, Analyst
Yes. No, I understand, Fritz. That makes sense. I'll ask one more and then I'll turn it over. Maybe just a little bit strategically longer term. How do you think about the cadence of the geographic expansion? I know when you went into that with the plan that you laid out, you were able to throttle up and throttle it back based on market conditions. You, obviously, pulled forward a lot of terminal openings late last year. As you look out through the balance of 2020, is this an environment now where you kind of work with what you have? Or do you think you'll still have some more opportunities to do continued geographic expansion for the rest of the year?
Frederick Holzgrefe, CEO
Thanks, Todd. I believe our focus in the first quarter and throughout 2020 has been on execution. We are leveraging the terminals we opened last year, especially those that launched in the second half in the Northeast. Our aim is to maintain a strong balance sheet, enabling us to respond to any market disruptions that could present opportunities for Saia. However, at this moment, our primary value driver will be centered on optimizing our newly opened facilities, enhancing our network, and managing costs to retain flexibility for potential moves if opportunities arise. While we are open to reacting to opportunities, we are not proactively seeking new projects right now.
Operator, Operator
Our next question will be from Jack Atkins from Stephens.
Jack Atkins, Analyst
If we could revisit Todd's question for a moment, I have a second question regarding the cost structure. You have taken significant steps to manage costs over the past few weeks. Doug, could you provide some context on how you perceive fixed versus variable costs in your business? I'm trying to understand how the cost structure is adapting in response to the decline in tonnage we've seen in April.
Douglas Col, CFO
Certainly. You really need to consider a company's life cycle when looking at this. We have made significant investments in new markets, including ten new openings in the past year, which come with substantial fixed costs. As we start to generate more business, we expect to see improvements in our incremental margins, and we have already seen some of that happen. Our margins have approached the 25% to 30% range, where we believe they should be. However, until we increase the volume, some of the costs that are variable in the long run will remain fixed. There are expenses in our linehaul operation and city driving that we cannot eliminate, and while we are committed to providing excellent service to our customers, not all of those miles are efficient. Thus, I prefer not to strictly categorize costs as fixed or variable, as the situation is more complex given the fixed costs we have absorbed.
Jack Atkins, Analyst
Okay. Got you. So I guess maybe kind of thinking about end markets, Fritz, could you kind of talk for a moment about what you're seeing from an end market perspective? And if I think back, I think, Saia traditionally has a little bit more energy exposure just given sort of your historical geographic footprint. Could you talk about sort of where that stands for you guys today from a percentage of revenue perspective?
Frederick Holzgrefe, CEO
Yes. Looking at the year-over-year trends, the Houston region appears to be experiencing declines that are among the highest in the company, exceeding the average of our other regions, including LAX. This may be partly due to port activity. Doug mentioned that the 3PL segment has been the most affected for us. While we don't specifically identify other verticals apart from the Houston region as energy-focused, it’s worth noting that we’ve observed day-to-day volatility across various businesses, largely due to disruptions in operations and supply chains caused by COVID. Some segments may show a decline one day and then less decline the next day, leading to significant challenges in meeting our operating metrics. However, we are particularly proud of our operations team, which has successfully maintained service standards and met customer expectations despite these disruptions.
Jack Atkins, Analyst
Okay. That's great to hear. And last question for me, I'll turn it over. But sort of a longer-term question around technology. But, Fritz, going back to last year, you were discussing a number of tech initiatives that you were targeting for 2020. Obviously, the world has changed quite a bit here this year. But as you sort of think about those projects and this crisis, do you think that this is an opportunity to accelerate investments in technology? Or are you looking to maybe push those out until the market begins to settle down?
Frederick Holzgrefe, CEO
We will keep focusing on technology opportunities, which can be viewed in two ways. Last year, and into the first quarter, we emphasized our dock optimization tools, city planning tools, and linehaul tools. In the current disruptive market, we find valuable applications for these tools as they help us make better decisions to optimize and increase density in our operations during this crisis. These enhancements must continue, and we will make investments as we refine them further. Our operational procedures, including social distancing measures, have created a safer environment for our employees, and with investments in new handheld technology this year and next, we can further improve our safety program. This presents a unique opportunity for investment that will enhance efficiency while also providing a safer work environment for our employees and a better experience for our customers. These investments will persist as we manage this business for the long term. We will continue to pursue opportunities that drive improved decision-making.
Operator, Operator
Our next question will be from Amit Mehrotra from Deutsche Bank.
Amit Mehrotra, Analyst
Congrats on a great quarter, guys. Fritz and Doug, I was wondering if you can talk about the weight per shipment trends in April. It's holding in there, quite a bit better than I would have thought. Is that just, I guess, a mix of business there where it maybe more national accounts that have heavier weight. So if you can just talk about that? And then how should we think about yields? Can yield be stable? Or should we expect some deceleration there because of the high weight per shipment?
Douglas Col, CFO
Yes, the average weight I mentioned in the April update is a solid figure. However, I must point out that we are experiencing significant day-to-day fluctuations in weight, making it challenging to determine the underlying causes. For our field customers, the numbers have been stronger compared to our national customers, suggesting that customer mix plays a role. Therefore, we’ve noticed that the field has been somewhat heavier overall.
Amit Mehrotra, Analyst
Okay. And then just a yield question. I mean, maybe you can answer that two ways. I mean, should we expect it to decelerate because of what's happening on our weight per shipment? And then maybe you can just comment on pricing because, obviously, that's an important topic, especially in the context of the weaker volume environment in the second quarter.
Frederick Holzgrefe, CEO
I believe we mentioned earlier that the pricing environment remains stable. The mix of business and the weight per shipment will influence yield performance. However, this is still an environment where people are seeking returns, given our cost structure and the additional costs associated with operating in this disrupted environment, which shouldn't warrant a discount or a shift away from our pricing strategy.
Douglas Col, CFO
And I would add, Amit, along with thinking about the weight impact on the yield calculation, you have to consider fuel, too. I mean, as fuel surcharge revenue comes down, that's a headwind for your reported yield. So you really have to back up and just think about what the pricing environment is about. And for us, we see that as rational, and it's been stable so far. But the yield number does have some moving pieces to it.
Frederick Holzgrefe, CEO
And that benefits the customer as well, the fuel charge.
Amit Mehrotra, Analyst
You're right. And then just last one for me. Fritz, I mean, I guess the longer-term opportunity for Saia has always been kind of achieving an OR that's more in line with kind of nonunionized national LTL companies. And it seems like there's an acceleration at least internally to go after some of the opportunities and the cost that maybe had been left on the table or have you gone after as vigorously. So maybe like 2, 3 years from now, I mean, do you think there's anything kind of structural that's going to impede Saia from getting to that mid-80s OR on a sustainable basis? If you can just talk about from a structural standpoint.
Frederick Holzgrefe, CEO
I believe the long-term opportunity for Saia still exists. It's important to highlight that last year was a year for opportunistic investments for us. We had the chance to expand our terminals. When we initiated our Northeast expansion in May 2017, we set a pace for expansion based on available opportunities. Last year, we identified an opportunity to enhance our facilities and coverage in the Northeast, which we pursued as an investment despite its costs. This positions us well for future success as a national carrier. While focusing on these expansion initiatives, we are also investing in technology that helps us make better decisions to optimize our operations. You might have seen some early results of this in the first quarter. Looking ahead, as we move beyond the pandemic, I remain optimistic about Saia's long-term potential. We're continuously enhancing our capabilities through investments in data analytics and decision-making tools, which we've been developing over the last couple of years. I don’t see any barriers preventing us from achieving those long-term structural margins you mentioned. The opportunity is present; we just need to overcome the current short-term challenges.
Operator, Operator
Our next question will be from Scott Group from Wolfe Research.
Scott Group, Analyst
So with those moving parts you talked about on that last question with weight and fuel, is there any way you can actually share with us what revenue per hundredweight is tracking in April? I know you don't typically give it, but maybe you're not giving us some of the forward margin guidance, so maybe you can give us a little bit extra in terms of current month trends, just to help us with that.
Frederick Holzgrefe, CEO
There are many factors at play, and we will maintain our traditional focus. The situation is evolving daily, so we will continue to rely on our usual analytics.
Scott Group, Analyst
On the margin front, this may be a difficult question to answer. You had a strong first quarter. While I understand that you are not providing guidance for the second quarter, do you believe you have some visibility regarding improvements in full year margins?
Frederick Holzgrefe, CEO
Not really. Candidly, the question might be when we expect a return to normalcy. If we do get back to normal, I look at what we executed in the first quarter. If we can open the nonessential marketplace across the country again, I believe we have an opportunity to improve our margins over time. Our focus right now, as we move through Q2 and navigate this pandemic, is to preserve that opportunity. I can't speak to when the market will improve for us, but the opportunity is there, and our execution serves as evidence of what we believe we can achieve.
Scott Group, Analyst
Yes. No, that makes sense. And then last one for Doug. I just want to make sure I heard this right; was fuel surcharge revenue up 8% and the fuel cost down 6%? Is that right? And then how should we think about the net impact of fuel going forward? Does that remain a net positive for you guys going forward? Or should that sort of spread normalize?
Douglas Col, CFO
Well, I mean, as fuel is coming down, it benefits you in your cost as it's coming down. But at some point, when it stabilizes at a lower level, you're losing surcharge revenue, and the customer's benefiting, and he sees that as a price reduction. And then the day it turns back up, you're chasing it for a while, and you've followed us long enough to understand that. But yes, so fuel expense was down 6.1% in the quarter, and surcharge revenue grew.
Operator, Operator
Our next question will be from David Ross with Stifel.
David Ross, Analyst
On the equipment side first, you've done a nice job lowering the tractor age. Any comments on the trailers? What are you doing on the trailer side? Is the trailer feed expected to grow much this year? And how are you shaped for trailers?
Douglas Col, CFO
Yes. The average age of our trailer fleet has decreased over the years. This year, we are focusing our significant investment on our linehaul units and pup trailers. We are currently in the process of acquiring pup trailers with new captive beam capabilities, which will help us enhance load averages. The average age of our trailers, including both vans and pups, ranges from 7 to 10 years. The same applies to our trucks. We plan to take advantage of the lower volumes this year to retire some of our oldest trailers, providing an opportunity to streamline our fleet by phasing out older equipment on both fronts.
David Ross, Analyst
But not much growth, just more changing out the old and bringing some new, more efficient trailers?
Douglas Col, CFO
Yes. For the most part, I mean, when we were opening the terminals last year, we had to place a lot of trailers at all the new facilities, but not a lot of growth in the trailer fleet this year.
David Ross, Analyst
And then, Fritz, if you could comment on the change in Saia's Northeast competitive positioning as you continue to open up more facilities. And whether it's now at 19 facilities or when you had 12 or 6, has there been a tipping point or there are different benchmarks along the way that significantly improved your competitive positioning? So have you seen it? Or do you expect to see it at some point?
Frederick Holzgrefe, CEO
Yes. The success we've experienced in the Northeast largely stems from our differentiated high-quality service. We introduced this to a market where many customers were already aware of us, which contributed to our initial success. As we've expanded in this area, more people have become familiar with our offerings. Internally, we view it as less of a distinct region and more like any other part of Saia, similar to the Chicago area. We continue to optimize that market by leveraging our key differentiated services and quality, which we believe will be a winning strategy over time. It increasingly resembles the rest of our network, which is a great success and something we're very pleased with. We see an opportunity to enhance our national presence further. As we scale in this market, we expect to grow in regional freight as well. Initially, our focus has been on building national coverage, but as we continue to develop, you can anticipate additional growth in intra-regional Northeast traffic. For now, the primary success has been on our national footprint, which aligns more closely with the rest of our business, and we are excited about that.
David Ross, Analyst
And was there any threshold that you crossed, whether it was a revenue number, a few hundred million or footprint coverage when you added a certain state or 2 that really made you feel that way?
Frederick Holzgrefe, CEO
No. I believe it is primarily the overall customer acceptance we have observed. Looking back at our initial thesis, we have surpassed our expectations for internal market share in every market. This success has instilled confidence that when the terminals opened for us last year, we would be ready to seize the opportunity. We had a successful playbook from the first four terminals that we duplicated. There wasn't a specific moment where we identified a key measurement; rather, it has been about our overall successful execution, allowing us to take advantage of the situation. Therefore, the market remains a growth area for us, presenting opportunities for those terminals to perform similarly to our historic terminals, which is something we are eager about.
Operator, Operator
Our next question will be from Ravi Shanker from Morgan Stanley.
Ravi Shanker, Analyst
So one of the most powerful trends in recent weeks has been the growth of e-commerce. Can you share kind of what you're seeing in terms of benefits in your network or to your customers from that trend maybe in the coming quarters even?
Douglas Col, CFO
Yes. I mean, on a real short-term basis, we haven't seen a big change in. If you're thinking about e-commerce to the consumer, not a big change in our residential deliveries. I mentioned the field customer weight being up. So maybe some of that is into maybe customers. We have that are providing goods into DCs that are eventually going e-commerce. But I don't have any more granularity on it than that on a very short-term basis.
Ravi Shanker, Analyst
Okay. Got it. Just maybe a bigger-picture question. I mean, given the depth of the recession that's expected in 2Q, do you expect any kind of structural shifts in the makeup of the LTL space out there, whether it's more consolidation, where it's more share moving towards larger carriers, whether it's more movement away from brokers towards asset-based carriers? Any kind of permanent or kind of long-term shifts in consumer behavior or industry structure as we're out of this?
Douglas Col, CFO
Yes. It's yet to be seen. Over a business cycle, one would expect that during the lowest point, some capacity would exit the market. This was evident after the Great Recession in 2008 and 2009 when significant capacity left the industry. If this is just a short-term event, and the $3 trillion in stimulus aimed at addressing economic issues from the COVID pandemic effectively revitalizes the economy, influencing both consumers and the industrial sector, then we might not witness capacity reductions. However, in the long term, during a cycle, operators that are not generating cash and reinvesting in their businesses tend to exit the market. This industry demands substantial capital investment year after year, and if operators find themselves unable to make those investments during certain phases of the cycle, they risk losing market share swiftly.
Frederick Holzgrefe, CEO
I believe this is a challenging environment. So far, we have invested to withstand a downturn. No one could have predicted the current situation we are facing. However, we have invested significantly to reduce the age of our fleet and to expand our footprint, positioning us to benefit from this disruption. As the market eventually returns to a more normal state, we will be ready to take advantage of it. Our balance sheet and fleet are both in strong positions to facilitate this. The insurance market is also quite difficult. We have made substantial investments in safety technology, which reflects our modern fleet. We feel confident that we have done everything possible to mitigate risks in our business and are prepared to seize any opportunities that may arise.
Ravi Shanker, Analyst
Understood. And just lastly, Fritz, one housekeeping item. Apologies if I missed this. Your insurance line has been a little bit volatile over the last few quarters. Again, not a huge number, but more than enough to kind of impact modeling a little bit. Can you just give us a little bit of guidance on what we can expect from that line going forward?
Douglas Col, CFO
Yes. I mean, you're always going to see volatility around that line. I mean, we self-insured the first $2 million in an accident. So that in itself, for a company our size, will create volatility in any given quarter. In terms of the overall market, though, I mean, as Fritz alluded to, there's extreme pressure on truckers and in the insurance markets these days. Our premium cost this year, just in our excess tower. I mean, I walked into our renewal budgeting for more than 20% inflationary cost there. So that's an environment that has seemed to harden each month as the months go by. And again, that's something across the cycle that can also put pressure on a smaller carrier, a company that's not in a great financial position because if you don't decide to buy the limits you used to buy, then you run the risk of having an accident that compromises your balance sheet in terms of settlement or a jury verdict against you or something. So being able to buy equipment with good safety technology, being able to afford insurance in this very inflationary insurance market we're in is, those are things we're able to do these days, and it positions us pretty well. But you'll see volatility in that line around the accidents, but our premium cost, I mean, we just renewed ours. March 1 was our renewal. So we're through with it for a year, but there's occasionally volatility.
Operator, Operator
Our next question will be from Stephanie Benjamin with SunTrust.
Stephanie Benjamin, Analyst
I wanted to follow up on some of the productivity initiatives you mentioned, particularly how you've benefited in the first quarter. Could you discuss the productivity or profitability improvements you're seeing in the Northeast, especially before the volume declines related to the virus? I'd like to hear how you're continuing to scale and improve profitability to align with the company average.
Frederick Holzgrefe, CEO
Thank you, Stephanie. The best way to approach this is to refer back to our year-end call where we discussed the impact of new terminals we added in the Northeast. Initially, these terminals brought additional lease and start-up costs, which held us back as the operating ratio fell below 100%. However, we mentioned that over time, we expect to gradually enhance productivity in these areas as we utilize the terminals more efficiently. While I can't provide specific figures for the first quarter's improvement, this effort is a key part of our broader productivity strategies. Our goal is to increase volume, optimize our city and dock operations in those markets, and gain the same benefits as we do in Chicago. We're dedicated to applying the same tools and metrics in these new markets. Given that these terminals are new, the impact of the incremental revenue is more pronounced, but I don't have specific details to highlight. Nonetheless, we are employing our tools in these markets as well.
Stephanie Benjamin, Analyst
Got it. And then just staying on the same lines of productivity, you again called out some technology initiatives that rolled out in 2019. Were those, can we think of those as largely rolled out by now? Or is there another kind of level or next innings of productivity or investments that we expect to see in 2020 to drive savings, call it, in 2021? Just maybe some color on the timing of that would be helpful.
Frederick Holzgrefe, CEO
Yes. All the technology initiatives were under development in 2019, and we started to see their benefits in 2020. These can be considered initial improvements where the team has become familiar with using and optimizing the tools on a daily basis, and I believe we will continue to enhance our skills in this area. We have further enhancements in our development pipeline to add features to the tools we've created, so I expect our utilization of these tools to improve over time, moving into next year. Essentially, this is all about data analytics, focusing on how to make better operational decisions in real-time. For instance, with our dock tool, we traditionally measured dock associates' productivity on a daily basis and provided feedback afterward. Now, the tool provides real-time updates, allowing supervisors to monitor dock workers' performance against set standards as it happens. This means that if any issues arise, supervisors can promptly intervene to help dock workers get back on track. It's about learning to use and optimize these tools, and we anticipate continued benefits in the future. We're enthusiastic about the technology, but I don't believe we've yet realized its full potential.
Operator, Operator
Our next question will be from Jason Seidl from Cowen.
Jason Seidl, Analyst
Doug, you mentioned the GRI that was put into place in February. I would like to understand how it has been performing as the market experienced a downturn in late April and likely into early May. Additionally, I have a follow-up question about the business mix.
Douglas Col, CFO
Yes. Historically, we retain about 80% of our general rate increase, and we tend to offer some discounts to customers. This estimate remains reasonable since customers are benefiting from lower fuel surcharges. It's only been a couple of months since early February, and I don’t believe we've had to make any significant adjustments. The business from customers remains stable, and while there will always be some requests for rate reductions, overall acceptance has been consistent.
Jason Seidl, Analyst
Yes, well, knocking on wood. It's very clear. I believe you mentioned that your national accounts saw a decrease of about 13%, while your 3PL accounts decreased by 30%. Considering that 3PL makes up a smaller portion of the business, could you remind us if there is a difference in the freight profile regarding the margins between national and 3PL?
Douglas Col, CFO
We try for there not to be. I mean, we try to price all the business, even the transactional business with the 3PLs. You try to price them all to operate profitably. The 3PL business, it's probably 8% or 9% of our shipment volume today on a given day versus 10% or 11% a year ago. So I think with the volume loss there, part of it has been us kind of sticking to our prices there and trying to drive the profitability of that business down and a little bit more in line with where we would like it to be. So no, the profile, it all depends on an account-by-account basis. We've got thousands of customers. So I wouldn't try to call it out by customer type.
Operator, Operator
Our next question will be from Tyler Brown from Raymond James.
Patrick Brown, Analyst
Fritz, so you mentioned weight per shipment, length of haul, and classes, drivers of price. We see weight per shipment and length of haul. But did class move on you, particularly over the last few weeks? Basically, I'm curious if beyond weight, the complexion of the freight is changing.
Frederick Holzgrefe, CEO
I don't have a specific update, Tyler. It varies daily, but overall, it's largely stable.
Patrick Brown, Analyst
Okay. Okay. That's helpful. And then I know you guys are flexing hard, but are you guys still generally maintaining your linehaul schedules? And what I mean by that is, are you still cutting those outbound trailers even if the load factors might be off a little bit, basically as to not compromise service?
Frederick Holzgrefe, CEO
It's always about finding the right balance. It's important to ensure we are sensitive to service needs, but if there's a chance to increase density, we will take it. Clear communication with our customers is essential so they are aware of our capabilities and service offerings. This presents an ongoing opportunity for optimization. It's a combination of both approaches.
Patrick Brown, Analyst
Yes. Okay. Well, you gave claims, but how is the on-time percentage tracking?
Frederick Holzgrefe, CEO
We're very pleased with the service we've been able to provide. We're at our standard or above.
Patrick Brown, Analyst
Okay. Okay. That's helpful. And then, Doug, just to be clear on the 401(k) match and the lack of incentive comp. Those shock absorbers kicked in, in April, right? So they were not in Q1?
Douglas Col, CFO
April 1. That's right.
Patrick Brown, Analyst
Okay. And then you mentioned the $10 million PTO drag, but how much will that 401(k) suspension and again, the incentive comp reductions be a good guy either in Q2 or through the year?
Frederick Holzgrefe, CEO
So the PTO will be spread out over the balance of the year, right? So that's earned as somebody goes through the year. And we haven't given a carve-out specifically for 401(k) or the other.
Operator, Operator
I'm showing no further questions in the queue at this time.
Frederick Holzgrefe, CEO
Great. Well, in closing, I'd like to say that while the uncertainty and volatility surrounding the pandemic brings significant daily challenges for us, I'm extremely optimistic about our long-term opportunity. We remain focused on maintaining the company's financial position along with our flexibility to adapt to challenges as the country moves through this pandemic crisis. By expanding our geographic footprint over the last few years and by investing in meeting capacity in our existing network, we believe we're well-positioned to gain share in what will continue, in our view, to be a consolidating industry. Thank you all for your participation on today's call.
Douglas Col, CFO
Thank you.
Operator, Operator
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.