TFI International Inc. (TFII) Earnings Call Transcript & Summary

Okay. Good morning, everybody. Good morning, and welcome to the New York Stock Exchange and to TFI International's first-ever Investor Day. I'm David Saperstein, I'm the CFO of TFI International, and it's great to see a full crowd and so many familiar faces here. And welcome as well to those following along on the webcast. We have a very informative morning planned during which you'll get to hear from many of our EVPs who will be interviewed by several of the research analysts covering the stock, and plenty of Q&A along the way, and we're all looking forward to taking your questions. Before we begin, I just want to draw your attention to the safe harbor statement that will be up on the screen and it's also in today's slide deck, which after the presentation will be put on the website. Also, several reconciling tables are in the appendix of that deck for anyone who needs them. And with that, it's my pleasure to kick things off, and I'll hand the podium over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International.

Well, thank you, David. It's really nice to be here. Like David said, it's our first. So for sure, we're going to be talking about a lot of stuff today. But I'm really proud to -- for me today is a showcase of our team, okay? To showcase our team that are there to build the company that we have today, right? Now TFI started 25 years ago as a small regional LTL company in Canada. And over time, I mean, we've built the TFI that we know today through a lot of M&A activity. So I would say that our team is second to none on M&A. I mean we went from a small CAD 100 million company today into close to CAD 10 billion today. And most of it has been done through M&A. So we started with a small regional company in Canada, like I said, LTL. And then we moved on to Truckload in Canada. And then we move to P&C. And then we said, "Listen, guys, maybe it would be nice to grow south of the border, right?" So then we move into the Truckload operation. And last but not least, our diamond acquisition was UPS Freight, right? So you guys will have a chance to listen to my talented colleague here, okay, being asked question by some fantastic analyst, okay, that covers our company, that know a lot about our company. And this is, in my mind, a fantastic way for you guys to understand who are the guys behind the CEO that built this company. So when you look at TFI, what do you see? I mean TFI is stronger than ever. I mean our leverage has never been at 1. I mean it's a superior record of growth. I mean, if you look at our website, we have a presentation there and you see over time, I mean, the growth has been tremendous. We're also a transportation -- a North American transportation and logistics company leader. I mean our focus at TFI, and I've said it for 25 years, always been the free cash flow. Because with free cash, I mean, you could do a lot of things. You could pay a dividend, you could do some M&A. And if you've got leverage, you could pay down debt, right? So that's always been the focus. And one of the secret that we put in place from day 1 is that our operators, okay, all the assets that these guys are using are leased, okay? And there's no depreciation. All depreciation is at office, we manage that. So it's very easy for an operator to understand lease payment. Contrary to interest or depreciation, it confuses the issue. So we do that for the trucks and trailers, and we do the same thing with real estate. And on the real estate side, the beauty of our system is every 2 to 3 to 4 years, we reevaluate the market value of the property, and we end up with a cap rate. So they got base of rent that represents the market. So that helps us in educating our operator to do more with less, right? So to do more with less means less capital. So less capital, the same return, better return on invested capital. We've also been a big fan of diversification. So -- because we started in Canada. In Canada, if you want to have size, there's no other way to be diverse, diverse in terms of the geography and also diverse in terms of the product offering. In the U.S., it's a different story. If you want to be an LTL player, market is so huge that you could be just an LTL play. But as we see now more and more, one of our peers, a very good truckload company, a year ago, bought an LTL company. So I mean, this principle of diversification makes sense if you manage it as a stand-alone, in my opinion, right? So like I said earlier, a robust return on invested capital. That's our goal. And I think our track record of 25 years speaks for itself on M&A. We're a big fan of M&A. So here is the picture of TFI today in terms of revenue. So we are an LTL company today. So we're back to our base of 25 years ago, right? So close to 50% of our revenue is truckload and network. And then if you add on top of that, our P&C, okay, at 7%, so you do the sum, more than 50% of our revenue is network based, okay? Network based mean that you need terminals, okay? It's a huge investment in real estate, okay, et cetera, et cetera. And then we have our truckload, which is huge to us and very profitable. So in there, okay, we do about 22% of our global revenue after we sold our CFI asset. And then last but not least, our logistics is 25% of our revenue -- yes, 25 -- 24% of our revenue. So this is a great business. We do really well. Yes, ROE is single digit, normally around 8%, but there's no real assets in there. So the agenda for today is they told me, you must not speak too much because you always talk too much. You're going to put yourself into a problem. So we're going to start with Paul, okay, the U.S. LTL with Jack Atkins from Stephens. Then next, we have Mr. Brookshaw with Scott from Wolfe. And after those two, we need a break. So then next is going to be after the break, we have Rick and Chris. So the difference, Chris, is more like our Canadian LTL intermodal, okay? And Rick is the over the world guy with Walter from RBC. Then we've got Bob, okay, our P&C guy, okay, leader of our P&C division, young guy, right? Yes, good looking, too, right? So we've got Bob. And then Kal also with Rick is going to close our presentation with our EVP with Ravi from Morgan Stanley. And David is going to be the guy that's going to put the cherry on the cake. He's going to be the closer, right? And after that, we have a Q&A. So I'm going to be here for the Q&A. And if I can't answer, I'm going to ask some of our nice, very well-groomed colleague here. So with that, where do we start, David? I think we start with -- all right, we can start now. Okay. Well, let's do it. Thank you.

And if you have follow-up questions all morning, [indiscernible].

It's my good side.

All right. Great. Well, Paul, thank you. Thanks for doing this. David and Alain, thank you so much for having us do this. All right. Well, Paul, what do you say we dive right in? I know we're starting at the top here. Maybe we can begin with a little bit of a look back. I think TForce Freight's 3Q results caught some folks off guard to the downside, less in particular. Folks maybe looking for a bit better operating ratio in the third quarter. Maybe if you can kind of help us think through what happened. Did you see freight fall off pretty quickly? What prevented you guys from being able to manage headcount and direct costs more efficiently?

Sure, right out of the gate. So the -- so third quarter volumes, as you touched on, right, softer market and the move down within the quarter. And then I think you're asking, what are you not good at. So...

Not quite like that, but...

Yes, that's what Mr. Bedard says. So a few things that we aren't good at, and I'll talk about that and maybe why and what we're working on a little bit. And I'll start with our largest cost is line haul, right? And we have a very poor system to manage our line haul network, right? We have a small package system that we adjusted for LTL. It's very manual. We have 5 different systems that we have to use to go and optimize our network. So it takes about a week to do it. You have to run it through the system, then you got to key it in our TMS system. You got to check to make sure it's right. You have to then set up the driver plan, et cetera. And so we only have really the capability to do that once a month. And that's very -- it works well in a stable environment of volume and where we've been. It worked fine with UPS. But when volume drops, right, obviously, your biggest cost, you need to get the cost out quicker. We've been -- we identified this early and we purchased an off-the-shelf system that we're integrating that several of our competitors use, had a lot of success with. And it's all integrated via API and it's dynamic where you could reset your network every single day with current data. We'll probably start every week initially. But that -- we've been working very hard to implement that. That's going to come in here in the fourth quarter, targeting December 1. But for sure, that's going to be a key item that sets us up really well for 2023 because, again, we've been able to manage our biggest cost with that. Secondly, I would say we weren't good at managing people. Really, our approach had always been to manage hours with UPS. And so you would keep the people onboard, try to control hours with always the fear that, hey, the volume is going to come back, you're going to need those people. We had that a little, I would say, confirmation bias with that in 2020 with COVID, right? It dropped. And then after the stimulation and everything else, right, very, very hot freight market. So it was smart to keep your drivers then. What we found a couple of things by doing that is it's really hard to get the productivity when you don't take the people out, unfortunately, because it's just human nature to work the driver, right? They come in to the local management, hey, I need the hours. And so we -- our productivity was not where we wanted it. So we've changed that approach going into the fourth quarter. And unfortunately, we got to go into the layoff mode. And so we start -- we switched and went top down and said, hey, based on the projected volumes, here's where we're going to be, here's where we're going to be in the first quarter. We ran it through our IEs, our engineers in the center and said, this is how many people you're allowed to have. Mainly, I'm talking P&D and dock there, but some line haul as well. So that's number two. I'd say the third is we just weren't good at managing equipment at UPS. I mean, I would say we were borderline hoarders, possibly need some therapy. And I can tell you, Mr. Bedard is a minimalist. So we're going from hoarder to minimalist. And we really didn't have the avenues to do that, right? We just scrapped equipment, we didn't sell it, we didn't get charged for it by the parent company other than depreciation. Our equipment is very, very old. So we kind of had the mentality, hey, this is free, keep it. We didn't -- UPS didn't invest a lot of new capital, right? So you're always worried to get rid of something because what else is going to come in. So we changed that approach. We just hired a new individual from the industry who is very, very good at managing equipment. He reports to me at TForce Freight, and we've identified a significant amount of equipment, 500 tractors, 2,500 trailers that we're looking to push out in 4Q to get our cost down and our rolling stock matched where the volume is. So those are probably 3 big things that I can think of.

Okay. So it sounds like there's some changes coming here in the fourth quarter that can help and then down the road in the next couple of months with linehaul optimization.

Yes.

The same off-the-shelf technology to better manage your linehaul, do you -- is there an opportunity to do that with P&D as well eventually or...

Yes, absolutely. And we're -- we've got a lot of things going on, right? So yes, so optim, I would say we're in the ninth inning; I would say, in P&D, we're in the second inning. So this same company that does linehaul, they also have a P&D product. So we've given them 3 service centers to test and say, okay, run it through your model, we have our model, tell us what we can save. And that's how we started with this whole line haul product. So we're coming in right behind it. As soon as we get this one up and running, we're going to start down the P&D as well, which is our second largest.

Is that something that could come in '23 in terms of...

Yes. Yes, for sure. It'll...

So the line haul is a fourth quarter?

Yes, line haul will have all '23. P&D will be half of '23.

And if you think about the opportunity set for being able to better manage your line haul given that's your biggest expense bucket, is this something that's hundreds of basis points of opportunity, 100 basis points of opportunity? How do we think about that just from that one item?

Yes. So the -- we'll know more when we get it in. I'm targeting 100 basis point opportunity in '23, right? So that's -- you got to build, you got to get used to it. It depends where volume goes. But I think there's probably upside to that as well eventually because when you optimize, that's less equipment, less drivers left. And I didn't talk about the other costs. Just to touch back, when -- the other advantage you get when controlling people, not hours, is benefit cost, right? So we really get hit on benefit costs. So when you get all that in, yes, I would say, 100, 200 plus basis points eventually. And the ability to do it quicker, right? We do it once a month. We're going to go to once a week, eventually it's going to be once every couple of days. So...

Okay. Maybe kind of building off of that for a moment. Alain has talked about the longer-term opportunity from an OR perspective within U.S. LTL. It's low to mid-80s, and a relatively short time line to get there, call it, 2 to 3 years from now. And we've got a little freight recession in the meantime. So there's -- I know you've got your hands full. I guess when you kind of think about going from about a 90 operating ratio today,to talking about 500 to 1,000 basis points of improvement, we just touched on one opportunity, which is line haul efficiency. What are a couple of the other larger buckets that get you from where you are today to there?

True. Absolutely. So the -- so first, I would say we went from 100 to 90, let's not forget that feat, right? And now we got to go from 90 to 80 because that first 10 wasn't necessarily easy.

What have you done for me lately?

Exactly. Good point. I hear that a lot, yes. And so the real -- the one that is not sexy at all, but is going to be most recent is our back office costs. So when we went out, UPS took all of our back office costs, right, when we were UPS Freight, so the customer service, GL, everything. And we, as of May 1 last year, they still handle that, and we have to take it on, right?

So shared services?

Yes, shared service. As of May 1 that year, they doubled what they were charging us prior to say, hey, let's give you an incentive, right, to get off these systems. And so we're working diligently to get off those systems. And the big one that we have going right now is our general ledger system, and that's -- we're targeting, obviously, January 1. The big one right behind that is our human resources system, which is April. We're on March, April. Then we're doing our technology system, our billing rating. That will be April '23, and then our automotive AIS replacement will be August '23. So a lot of big system changes that are coming in. And just from a cost standpoint, starting April '23, we'll pick up 100 basis points in OR just getting off the GL HR, then a couple of the smaller systems. So what we have going on right now, Jack, is -- so let's take AP, for example, everybody understands AP, right? So I'm paying UPS for an AP system, AP people. At the same time, I'm hiring AP people, training them, paying to do the same -- that right now here in the fourth quarter. Also, I'm paying a technology company as well as my IT group to establish a GL and AP system as well as I have to pay UPS extra money anytime I need a data extract to migrate the system. So we have a lot of cost going on that's why I always tell Mr. Bedard I'm double paying for things until I can get fully out of the system. And then UPS says, okay, we're not going to charge any more. So we have a lot of cost here in the third, fourth quarter for these transitions. We just got through customer service. We just got master file billing rating under our control in the third quarter, which is going to help us go forward. We're going to get a new system in April, but we took control of the people. So that right there is 100 basis points in 2023, starting April '23. So it's huge from a low-hanging fruit standpoint. The other big, big one that is going to help us in '23 and beyond is our equipment, right? So it's no surprise. UPS, we were small, nonplayer, didn't have the return so that we were very undercapitalized from an equipment standpoint. And it's costing us a fortune, right? We have 10% of our equipment down, people are holding equipment because of that, our maintenance costs are high, our fuel economy, worst in the industry, I guarantee. And so as we get this equipment in, right, it's going to bring down our maintenance expense, it's going to bring down fuel. But the other things you get with that are forward-facing cameras where we can work with our drivers on safety, it's all the safety features. It's driver retention. It's just the ability to know that the equipment is up and running, the service failures and everything that you get. So it's going to be a much more fluid type operation versus, I would say, we're very clunky right now, okay? So those are 3 big items.

Okay. So just to go back and clarify one thing. On the back office, the shared services costs that you're getting off of from UPS, all the duplicative costs you're bearing right now, you said combined -- I think you listed 4 different things between general ledger, HR, tech billing, and a couple of other items, all that combined is the 100 basis points? Or just the general ledger and HR is 100 basis?

General ledger, HR and a couple of little...

Okay. So the shared services would be 100. That's -- okay.

Yes. That's just '23, right? So then there will be more when we're able to do our rating billing system, then our maintenance system, all that, which will come later in the year. So I would say there's one -- there's probably another 100 basis points there when we're all done, right? But the first 100 -- I got to get the first 100 first before I get the second 100.

Okay. Got it. So I mean you have line of sight in terms of -- you have line of sight into getting to a mid- to low 80s operating ratio just with executing on the opportunities that are in front of you. And that's without any help from the broader market.

Yes. Yes, that's a stable [ thought ].

If the market flips back in your favor, that's a plus?

That's a big help, absolutely.

Well, let's talk about a potential offset to that, which is inflationary cost pressures that everyone is seeing across the economy right now. You all also have a labor agreement that you have to negotiate beginning next year. So I know you're looking forward to '23 going on. How should we think about potential inflationary offsets? And then everyone's worried about with UPS, the labor negotiations. Is it something we should worry about with TFI?

Yes, sure. So from -- I'll start inflationary, right? So I don't -- I see normal, like a normal -- well, I guess what's normal inflationary? Like 2%, 3%, what I would call normal inflationary pressure with our contract. We really -- the inflation hit us in 2022. So the driver shortage was pervasive in the industry. So we -- everyone, not just us, everyone, if you wanted a driver, you had to pay a signing bonus, you had to do a referral bonus, you had to pay a HR third-party company to go find drivers for you, and you had to pay them a bonus. We had to move drivers up the scale into top pay. We have the most drivers at top pay and it's, I don't know, I'd say 95%, if you ask me a number, at top pay already that we had to do. So I would say the vast majority of the inflationary costs have hit us this year. And so a lot of those are going to subside. Like right now, people are paying -- sign us bonus, you're not having to pay a third-party service. I don't see that in 2023, and I see a normal type increase. We have, we say, fair pay, I would say, fair/high pay in the industry already. And so I don't think we need to add on that too much to make our employees happy and appease the Teamsters, right? So the Teamsters, we had a very good initial meeting with them at the contract right after the close. We met with them at the executive level, right? And we said, hey, we're going to run this business differently than UPS ran this business. We're going to abide by the contract. Not to say that UPS didn't do that. But if we put something in writing, we'll abide by it. We're not going to have attorneys and labor people dealing with the issues. We're going to have operational people at the local level that deal with, and we took some training and things to do that. We're investing more. We're going to have the best equipment. We've refurbished a lot of our facilities that UPS wasn't. So our employees see that, and the Teamsters see that. When we sat down, they say, hey, we get it. You guys still have baggage with being part of UPS, but we can see that you have a completely different approach to how to manage the company, and they were very pleased with that. So I would say our -- we're very aligned in what we want to do. And then you talked about the disruption, right, we had in 2018, which was -- which is bad memories, which I don't see that at all, right? So they -- that's not good for the company, it's not good for the employee and it's not good for the Teamsters either, right? A lot of that angst back in 2018, not to uncover too many details, was really more of UPS corporate and Teamster issues and that they were having at the time that was kind of taken out on the business user. Had we been stand-alone, we would have had a different approach with 2018. It would have been the same approach that we had in 2013 that worked fine, right? Our employees voted the contract on in 2013, and then we've changed a few things and went back and really educated them and said, this is it, and we were fine. So we wouldn't have emptied the network if it was up to our own devices.

Okay. So I'm going to ask one more question then we'll turn it over to the floor for questions from the audience for you, Paul. But I guess, my last question for you, and I can keep going, too. So...

Let's keep going.

It's around service. You talked about it earlier, but it's obviously -- it's a key focus in the LTL industry. I think high levels of service put a moat around your business and pricing, to some degree, if you can demonstrate that. How does UPS -- excuse me, TForce Freight improve their service product because it's towards the bottom end of the industry in terms of national carriers?

Yes. Yes, definitely towards the bottom, I would say, in customer perception. So I'll talk about that. The -- so right out of the gate, we've got -- it was May '21, right, very hot market coming out of COVID very tight industry. So the customers' two biggest concerns were, can you make my pick up and can you not damage my freight, right? So that's two areas that we tackled and focused on right away. And we found out from a claims standpoint, right, we were hauling a lot of freight that doesn't fit, as you will hear from Mr. Bedard. We were also putting goals for our people to not damage the freight, yet we weren't giving them the training or the equipment to not damage the freight. And so what we had was we had these trailer racking systems that were within -- integrated within the unit. And what we would do over time is damage those racking systems, right? And then we wouldn't want to take the trailer offline because we need the trailer. So we would push the racking system up to the top and load freight on freight, which doesn't make -- that's not a good combination. And so we made a significant investment each month throughout '21 and '22 on -- we're going to portable racking systems, right? So you can take them on and off, you don't damage them, as well as load bars, strapping, et cetera. So very aggressive. We increased our training for our employees. We weren't training them long enough from an employee standpoint. Or as supervisors, we were under supervised on that as well as accountability. So a lot of progress in there. We got our claims ratio below 0.5. Our projects called 0.25 will give you an indication of where we're trying to go with that, right? So a lot of focus there. And then we focused on making the pickup. And we had a problem in that we would miss pickups and then we would say, no, we didn't miss the pickup operationally, right? It's just the operator didn't want to get their head bashed in for missing a pickup. Well, the problem with that is everything looks rosy, right, but you're not servicing the customer well, and you don't know where your problem is. So we went to -- I don't want to call it an amnesty program, but say, hey, just report it. We're not going to clobber you. We're going to have a discussion as to why are you missing it. Is it a driver issue? Is it an equipment issue? Is it a -- is it the location of the customer? Is it the -- there's a lot of things that you can solve on this pickup. So we've improved our missed pickups by well over 50%, our claims well over by 50%. And then I would say we were a little late to the party on on-time service. I'll say, we're late to the party because initially, customers weren't really worried about that, right? They just pick it up, don't damage it, get it there when the market was really, really tight. But then the market softened a little bit, our competitors picked up their on-time service, and we were a few months behind, I think, on that. Really January, February of this year, we said, hey, this -- we can see through our customer complaints, et cetera, this is becoming an issue. So then we really got focused on on-time service as well, and that's improved about 50%. So I feel good about where the service product is. It's not what we've done. We obviously need to improve. And it's going to take time, right, for customer perception when you've had years of okay to mediocre service, right? And as we move it up, it takes a while to make believers there.

But do you feel like you've taken -- you made some tangible improvements over the last couple of months, and it's just going to take some time for that to really show up in your numbers.

Absolutely. And just culturally kind of a completely different thought process approach and the tool. So yes, I feel good about what we've done and where we're going. We do need to continue to step it up because like you said, it is a moat. It helps you with churn, right? It helps you price. When we look at where we are with our price versus our service product, I think we're right where we need to be, but we want to be better.

If you improve the service, you can take the price up.

Exactly. That's the easy way to add to the margin -- easier way to add to the margin.

Well, we've got about -- I know we started a little bit early. We've got about 13 minutes left. We make -- depending on if we can go a few minutes over.

[indiscernible]

Okay . Great. Well, let me ask one more question and then I'll turn it over to the floor then since I have a little bit of extra time here. I guess when you kind of go back to the operating ratio discussion earlier, and we sort of think about the different factors that we're looking at in '23. The freight markets are obviously decelerating pretty rapidly. If you want to comment on that, feel free. But you also have a lot of opportunity to do some self-help. Do you think that translates into operating ratio improvement for TForce Freight in 2023?

The -- well, I haven't had my budget review meeting with Mr. Bedard yet. So we'll...

We're going off-script here with the questions. So I didn't him to see it.

So the -- I'll tell you -- I'll talk about the market, right? So the 2023 market, I definitely think is going to start soft, right? So we have the decline in the third quarter. There's at least 2 major carriers out there. One, I think, was down 24% in October. The other, who is a known grower, was down 7%, right? So that's an indicator of a continuing soft market, which will go into 2023, I think, for sure, from the first half from a market standpoint. So that's obviously a big headwind there. I do think that when you talk to customers, there's still supply chain issues out there, right, where they can't even service their customer where they have an order, still difficult to get in the parts, as well as a lot of bloated inventories, especially in retail, inventories are very, very high. So I think as those things work themselves out in the first part of '23, I'm hopeful that those will be a little bit of a tailwinds versus the headwinds going into the second half of '23. So I'm hopeful that the second half of the market will be stronger. From a price standpoint, right, which is always the big question, I think we'll be positive going into 2023. And I think that for a lot of reasons. One is I feel like we've had a bit of some natural governors on in 2022 from not able to get the equipment, right? So we ordered 760 tractors. We still don't have 600 of them in our '22 order here sitting November 10. So you can't get the equipment. It was very difficult to build facilities, right? You couldn't get contractors. It took a long time to build facilities. Just like if anybody tried to do a project at home or put in a pool, right, the labor market very tight outside of labor. And then I talked about it earlier about the driver labor market. So that prevented -- my opinion, prevented a lot of us from overbuilding, overbuying and overstaffing, right, going into 2023. So you don't need as much volume to feed the beast, right? So I think that's a big price difference. I think we have veterans running LTL that are very familiar with what happened in 2008 and 2009 when people did use the price level, right, and billions of value went out of the industry. So I don't think people are looking to make that mistake. Also, I feel like we're way better positioned than we were back then with knowledge of what we're hauling. There's a lot more dim machines out there. Everybody has them. So you know the cube in your freight. Reweigh, you know the weight of your freight. We all have very good elaborate costing systems. So before, maybe you would take a flyer on business and rationale and convince yourself that, hey, maybe this would make money when, really, in your gut, you know it wouldn't. And now you'd have to really overtly do that. You know whether, hey, that's going to be a 130. And so I think CEOs are going to be much more reluctant to do that and take that on. The last thing -- I'm trying to filibuster from the question. The last thing I would say on that is several people have, I don't know how to say it, [ have denounced ] general rate increases because everybody is sneaky now, they don't announce them. But if you look at the change in tariffs, there's a lot of 5.9% general rate increases coming here in November. FedEx Freight, not to specifically mention people, I think was a 7.9% in January. So I think the carriers are saying, hey, there's inflationary costs out there. We need to get price in order to protect our margins.

So you feel good about price. Your industry-wide within TForce in particular, you feel like maybe the first half is a tougher kind of fundamental setup from a demand perspective. Maybe hopefully, things get better in the second half. You've got the self-help coming. So when you kind of put a bow on it, you feel -- it sounds like you feel like things are...

Yes.

Well, okay. All right. Okay. I'm not going to push you too hard on that because I don't want to get kicked out of the building. Okay, well, why don't we turn the floor over here for some Q&A?

Just wanted to ask you about the mix of freight you have in the system and how long you think it takes to work through? I mean, I think UPS had kind of a lighter focus, maybe more of a retail focus versus LTLs talking about industrial and heavier freight being better. So how -- where is the mix today? How long does it take to work through that? And then maybe just a follow-on. Is there -- in the future when you get through that, do you need to shift more to volume growth? Or is volume growth, in the future, not necessarily kind of a key factor?

Yes. Answer last first, yes, volume, definitely want to grow volume, right? I would say we're -- we've paused on culling our freight that doesn't fit right, because that works well in a strong market, not as well in a soft market. So I feel like we're at a good -- there is still some freight that once the market turns, we would cull, but long term, yes, definitely on growth. From a type of freight standpoint, it takes a while to adjust your freight mix. And the -- we have a very targeted approach of more industrial, higher weight per shipment, as you mentioned. We're also very focused on freight that's closer proximity to our P&D service centers, which was not a big focus for us as well. As well as we're looking for multiple bills per stop, which again was not a big focus area for us before. So those were some items that TFI is very good at, very good in Canada that Mr. Bedard brought to us and said, hey, what does it cost you for your -- to pick up one bill, right? And then what's that second one, cost, it's practically free, right? So you guys need to price, think, approach. And so you could talk to any of our operators, you could talk to any one of our salespeople, and they will talk about those exact 3 components of where we're focused on. We have targeted lead lists that we can provide through our past data, through UPS data and through some public data and say, hey, we want you to go talk to these customers right here. We know their weight per shipment, we know where they're located, we know their bills per stop. We've just had our costing. I'd think we were over penalizing heavier weight business back under UPS, right? We always had this fear that you're going to weight out a trailer. So we were a little conservative on that, which you just don't do in the LTL energy. It's very, very rare to happen. And you can move stuff around in your hubs and balance all that. So very targeted initiative. I think that one's, longer term, it's going to be -- it takes a while. Every month, it gets better and helps, right? But to really mix and get to where the better players are, if you just look at the math on that, on what percent of shipments you need to move to get -- we're at 1,075 weight per shipment, and we need to get up to 1,300. So -- but we have the tools now on that particular thing where we can give some visibility to our local management on their miles between stop, right? We're measuring bills per stop, bills per hour. We were a stop per hour company, right, because that's UPS. And Mr. Bedard pointed out that you don't get paid per stop, you get paid per bill. So let's switch to bill. And so we've done that, and that's been very helpful.

Ravi Shanker, Morgan Stanley. Maybe to follow up on the volume growth question. Paul, you've kind of highlighted a number of self-help initiatives that will help improve the OR in the next year or two. But at what point do you think you're going to be ready for that pivot to volume growth? Does that need all of the self-help initiatives to be completed first? Or do you think there is an intermediate point at which you can start drawing against?

Yes. No, I think we're ready. We're open for business and volume growth right now, and we have the capacity. And we're just being deliberate at what we're targeting, and it's back to heavier weight, industrial, close to the service center, multiple bills per stop. So we're being a little more selective. But definitely in growth mode. We're being very aggressive at managing our sales staff, providing incentives to that, et cetera. So we're ready for business. And a lot of the self-help will just take the costs out and make you more competitive from a price standpoint as we go forward. Thanks, Ravi.

Bascome Majors, Susquehanna. Paul, I believe you've been with the business since it was owned by Union Pacific, went through the spin-off, through the acquisition by UPS and now this ownership structure. What is it about the culture, approach or just really anything about this current iteration that's kind of enabled this to be a 20% operating margin business if things go well?

Yes. So completely different ownership, approach, thought process than we had in the past, right? So going back to the railroad, right, they bought a trucking company, they switched out the CEO and the next CEO was like, why did we do that, right? So then we went public in 2003, and we're starting to vastly improve the margins and have a lot of focus reinvestment in the company. UPS bought us in 2005. There were reasons why they bought us, right? And it wasn't because they necessarily wanted to own an LTL company. And so they -- UPS did not like the LTL space, right? So they didn't invest it. They put their money on higher returns. They didn't understand the LTL space. LTL may seem similar to parcel. They're completely different, right? As Mr. Bedard said, it's like having an electrician come in to do your plumbing, right? That doesn't make sense. Versus TFI understands LTL extremely well. They love the U.S. LTL space, right? And so the difference is UPS was like, hey, just don't cause any problems, don't break it. And Mr. Bedard is like, how do we dominate the LTL industry? How do we be the best? How do we be best-in-class and puts the money behind it, right? They're investing significantly in facilities and equipment. We had a record order last year by double from an equipment and looking at the same thing in 2023. So a completely different philosophy. The other one -- big, big, big one is at UPS, we price for the whole of the mothership, right? So we not only would have business that didn't cover variable costs, but it was good, right? We were doing $2 million. You go to talk to the UPS and they're like, yes, we do $50 million. So don't mess it up, right? Just take your 120 OR. TFI is completely different. It's stand-alone, stand on your moat business unit price for your business unit. It's not this cross-sell. It's not that. It's like you have your numbers. Another big difference is UPS nor Union Pacific that we focus on real estate or really equipment. Like I said, we were hoarders, TFI, I would put them up against anybody in managing the infrastructure of their business and getting the right rational facilities, getting the equipment out. They have a very, what I call, unique and painful process that they put in where they charge you working capital market costs for your facilities and your equipment, right? So that was an eye-opener for us because all our facilities were old, right? They weren't costing us much in our minds and fully depreciated equipment. It was like, no, no, no, that's not how we do it. If you want equipment, here's what the charge is which really makes sense because you have to recapitalize the business. So a completely different approach. And lastly, I would say both those -- well, I guess I did say, both those companies didn't really know LTL. TFI, because of their Canadian LTL, they understand the business very well.

Brian Ossenbeck from JPMorgan. So I just want to ask a question on the footprint side, on the equipment infrastructure side. How has that gone so far with rationalizing some of the assets? You probably have to pay a lot more than you've thought before. Does that help with the P&D and the density? And separately, can you improve that density in a weaker market? Is there still enough flexibility and wiggle room, so to speak, to improve that if volumes are coming down? And then secondly, I just want to ask more about the equipment. How optimistic are you are for next year deliveries? So I think some of these trucks probably are old enough to have their own driver's license. So what's the -- and what's the upside once you finally get that? And if you want to quantify that from an OR perspective.

Okay. You might have to remind me of some of those. But so the -- so from a facility standpoint, right, by the end of the year, we'll be down to about 181, right -- we were -- I think we had a high at 203, right, so 10%. So that's very significant, right? It's hard to change out facilities. The other thing that we're working on and we kind of do quietly is, let's say, we have a 70-door facility, we need 50 and OD or one of our other competitors needs the 70, right? So we're doing facility swaps where we can stay in that area, put money in our pocket and lower our ongoing infrastructure costs. So we've been successful in identifying several of those. So that's another way to do it. When we -- as we close facilities, it's not really a P&D advantage. It's a huge line haul advantage, right? So if you have 2 facilities nearby and you're running 1,100 miles like we do when you're running 2 different line hauls that are half full, or if you're running 4 and 2 of them are not full, it's extremely, extremely expensive, and that's our biggest cost. And so what we've looked at more at is like, hey, can we fit into 1, save all that overhead, management infrastructure, et cetera, have a large reduction in our line haul cost and then just handle P&D with a little bit more mileage, which eventually, as you build closer to the service center, you can even reduce that back. So that's been more of the kind of mindset on that standpoint. There's significant, right, savings in real estate and getting back to the question before of getting customers close to our service centers, that's just a little bit of -- a bit of a longer tail. But yes, I would say, long term, we're looking to 100, 300 basis points as our target for -- on our road to 80, but it takes a little longer.

So just to be clear, 100 to 300 basis points coming from the facility savings or 100 to 300 coming from the equipment and facility? Because I think part of Brian's question was around...

Yes. I would say yes. So the equipment long term, 100 to 300. Facilities, I would say probably 100 to 200 there. I was mixing in the P&D, right, and then getting them closer to the service centers. Some of them are crossover, right? Because even on equipment -- this says we're out of time up here, man.

Paul, you're doing good.

I think you've got one more question, one more question. One more question, and we'll wrap up. Two more, two more questions.

It's Konark Gupta from Scotiabank Canada. So Paul, I just wanted to ask you on the market share here. Usually, in the transportation industry, whenever you have a service improvement and cost improvement, I'm, like, it's usually followed by volume gains and market share gains. So can you remind us where you are from a positioning perspective, what market share you have today? And with all the improvements that you are planning for the next year, do you see an opportunity to gain market share in the LTL?

Yes, Yes. Great question. Market share, I would say, mid-5s. What would you say the market is, $45 billion? What is the number these days? You guys now that.

Yes, I would say it's $45 billion to $50 billion.

$45 billion to $50 billion, right? So we're $3 billion, $3.5 billion. So whatever the math is on that. The...

I'm a history major, so don't [indiscernible] me for that.

Yes, so I would say stable market share, right? So we're still selective on what were the type of freight we're taking on. We're definitely not going to give up on yield, right? But we have our service product improved, big focus area. GFP is an area, something that we have that we don't talk a lot about that we'll take share to that product, which is just freight priced as freight, so you can move parcel and do a easy comparison between parcel and freight and run it through our GFP product, which actually moves on UPS network. So very high service, low fuel surcharge. So it resonates very well with our customer base, especially on smaller shipments, which is good because that's not necessarily what we want, right, this smaller shipment. So I would say stable market share. We're basically almost through lapping our freight that fits, right? So you should see more stable share going forward.

Benoit Poirier from Desjardin. Obviously, real estate is very precious these days for LTL and putting density has always been a focus at TFI. So right now, when we look at your real estate, it seems that you have a competitive advantage versus some of your peers. Utilization rate might be a little bit lower when we look at the number of shipments per day. I would be curious about the opportunity to fill that capacity in the longer term. What could be the potential impact on the OR coming from getting the right utilization rate? And also, you've been making some comments about the pricing strategy, you need to put the right service in order to drive the pricing. What could be the impact on the OR once you get the proper service that would come from better pricing strategy?

Yes. So the real estate, again, 100 to 200 basis points, right, is what -- so there's a lot that goes into that. It's swapping facilities, it's reducing facilities, it's getting facilities in the right spot. We found we have a facility in Texas, right? We're in one city, all the freight is in the other city. Mr. Bedard is, like, why are you driving all these miles? And so we obviously need to move where our facility is there. We're getting aggressive at leasing out doors, which we haven't done within our facilities. And the other thing that we're doing here in the fourth quarter is, let's say, we have 60 doors, we need 40. Well, right now, we haven't been very disciplined, and the operators use all 60, right? That's very inefficient from a productivity standpoint. So we're actually rolling off the additional 20, not even going to allow them to use it, which is going to be an efficiency gain as well as more enticing, right, to somebody else that comes in and say, hey, this is basically a separate facility, different office area, et cetera. So big focus area. Price, that's the big lever that's really going to be driven by the market. We're going to be wherever the market ends up in price, plus a little, right? We definitely lead with price. We understand the focus. I think increases will definitely drop from what we had in the hottest market ever, right, in 2021, the beginning of '22, but definitely in the positive. I would think more increases, will be more mid-single digits than the double digits that they've been, but I think it's still going to be a strong pricing environment in '23.

But just to close on that, though. If you're able to prove customer perception around service and retain high levels of service, you can price for that. And it also puts a moat around your pricing. So that there's an OR benefit to Benoit's point on that down the road, over and above the market.

Yes, yes, yes. Yes, absolutely. Yes, longer term. Yes, you look at the look at the leaders in our industry and what they've been able to do with price because they're so good at their product. And that's who we're chasing, that's who we're targeting. That's who we talk about. Great.

All right. Well, Paul, thank you very much. I enjoyed it.

Thank you, Jack. All right.

Mic on, thanks a lot. Next, we're going to move on to specialized and Canadian truckload. We'll have Steve Brookshaw up, and the session will be moderated by Scott Group of Wolfe.

Remember, I'm just a chicken farmer from St. Marys, Ontario.

Are we live? Yes. Okay. Great. Thank you, Steve, for having me do this. I appreciate it. So I think that truckload, specialized truckload, probably one of the less understood parts of TFI. So hopefully, this will be a session that will be helpful for folks. So maybe just with that, just maybe just an overview of your truckload business and especially for the U.S. analysts and investors, what's similar about the Canadian market and the U.S. market? What's different about the market? Maybe just start high level and then we'll go from there.

Well, the customer base is very similar. We have -- on both sides of the border, we have the same building products guys, the same steel companies, the same people we're doing business with. What's different is in my U.S. side, it's all domestic. So they run domestic. In my -- on the Canadian side, we are probably 40% cross-border. So we'll do 3,000 cross-border shipments a week. It makes a big difference because now you've got a more specialized driver, he's got to be able to cross the border. So that drives that. And then one of the biggest things when I moved to the U.S. is the difference in retention. So in Canada, retention is around 25%. In the U.S., it's specialized, it's 50% to 75% depending on the business. And in the specialized world, the driver is not just a driver, he's an operator. So he's got to understand a pressure vessel. He's got to understand hydraulics. He's got to understand where to put the load on the trailer, so we can make sure he's legal. So he's probably as much skill set in understanding the equipment he's running and what he's doing when he gets to the customer versus a van guy. So the specialized business is what, as Mr. Bedard says, is what we really like, because that makes you sticky to the customer.

So to that point, you said the customers are the same, but we think about U.S. as being a very consumer retail-driven market for truckload. Should -- maybe just give us end market exposure like by vertical, U.S. versus Canada, and then we'll get into specialty as well.

So in our Canadian truckload side, we're -- it's retail, but it's mostly cross-border retail. So that's coming in. So that adds another price point to it because it's got cross-border to it. We do a lot more hazmat. So we're doing things where we're feeding the smelters with scrap computer equipment and things like that, so higher value stuff. So that's really that side of the business. And then on the specialized side, our end markets are the steel mills, the -- we're big building supplies. We're the largest -- one of the largest carriers in North America for drywall. We have a lot -- we move a lot of drywall for all 3 of the big players. So that's a lot of the verticals we run. We haul a lot of waste. In our dump business, we do a lot of hazmat, we do a lot of event work. We do a lot of feeding the steel mills with their input. So we're actually on the -- we're going into the mill. And then our dump business and our tank business will be going into the mill and then our flatbed business will be taking the product out the other side. So we're on both sides of the customer.

Okay. And now break down the specialized business for us, flatbed, reefer, dry bulk.

I knew you were going to ask me that.

Yes. Well, I gave you the list.

I know. I have it on my phone. So our biggest segment is the flatbed segment. It's about 30% of our business, 23% of the -- so it's 23% plus 7% gives us 30%. 7% is our U.S. portion. The next largest is our dedicated. It's 27%, and it's all U.S. Then our tank business is 18% Canadian out of the 25% and 7% U.S. And then on the bulk side, it's 13%. 9% of it -- 9% plus 4%, 4% for the U.S. gives us the 13%. So -- and then we have a little -- we do a little intermodal container business, which is -- mostly it sounds funny, but it's mostly a real estate play. The trucking feeds the real estate play.

Maybe just expand on that.

So we have 50 acres in Toronto, where we manage containers. They come in off of the ships, off the railroad. And we basically -- we manage the plugs, we make sure they're kept to temperature. We redeliver, we bring them in. One of them is a closed yard. So it's probably strictly for the LCBO, which is the liquor control board. And then we have another one that's open where anybody can come in and grab the container. So we basically run a -- almost like a storage business, and we manage that inventory for the steamships and for the customers.

So when you add it all up, how much is specialized is U.S. versus Canada?

So it's 55% Canadian, 45% U.S. And if you go back to 2019, we were -- in the specialized, we were 0.

In the U.S.

In the U.S.

Okay. And should we think about -- is Canada -- is it just as fragmented a market as we think?

Yes. Yes, it's very fragmented. And -- but we have a lot of density in the eastern part of the -- so basically, in the eastern part of Canada, so Ontario, Quebec. And then when we get into Alberta and BC, we've been growing in BC. We bought 2 companies in BC last year. One was a flatbed company, one was a tank company. So we've been focusing a little bit out in that market because we're -- we have a fairly significant part of the market in Quebec and Ontario.

Any sense of when you -- any sense of market share that you've got?

So we're about -- I don't know. In the eastern part of the -- we would be the dominant player, we would be over 50%.

Okay. This is a business that you've made lots of acquisitions over time. So...

Yes. I think last 5 years, my group has done -- we've done -- just my group and not including some of the stuff that was done in Quebec, we've done 29.

29 in 5 years.

Yes. So very small. Like we're -- when you talk about the big ones, a big specialized acquisition is $100 million, $140 million. It's not -- that would be considered big. We're buying in the -- the biggest one we bought was in '19 when we went to the U.S. when we bought Schilli Corp, and that was a $50 million one.

And is that the right pace to think about going forward, about 6 a year?

You see this gray hair? We're going to continue. There's lots of activity...

I mean what's the list? There's 100 targets, there's 50 targets.

So on our target list right now, we have 24.

24. Okay.

24. We -- that's probably most of my conversations with Mr. Bedard is about where we're going. We like the space. It's fragmented. It's a lot of family companies. So we spend a lot of time with the families. And we try to get to know them, so we understand how they'll fit. One of the things we're really working hard on because you guys have heard Mr. Bedard say it is, we're buying 96, 95 OR companies. We're trying to get them to an 80 to an 85. Integration is important. So that's the lever I have -- that I have to take and do a better job at is making sure that, that integration happens quicker.

So of those 24, are they all of these small tuck-in types? Any big acquisitions?

There are some bigger ones. There's people -- because people see the rainstorm coming and they're going, we've had a -- so my trailing 2 years are pretty good numbers. So there's some bigger ones out there, and they're bigger than we've seen in the past.

And so you just sold the U.S. [ FAM ] business to Heartland. What maybe didn't go right about that acquisition? And then would you consider another -- a different kind of larger than truckload acquisition or anything large would be not so much in the...

We really like the dedicated space. If it was going to be larger, it would probably be in the dedicated space. If you're going to get up over the 100 -- there's in the dump, in the tank and the flatbed, there's that size. But we would say they're dedicated. And I think there's an opportunity to do that. We're always looking. We're very oriented towards buying companies. That's really -- that's been my -- my 35-year career has been doing that.

So talk about that. How do we take a 95 OR company and get it to an 80, 85 OR?

Actually Paul said it. We strip out equipment. We try to integrate them to our system so we can get our integration, our back office. And then the other thing we do is we try to make sure -- because remember, we're buying companies that have been our competitors. So when they become part of the family, they still feel like a competitor. Their sales groups don't work. So we've taken and every week, we get together with the different segments, and they have a meeting. And so they make sure that they're understanding the market, who's best suited to do this piece of business and manage that pricing model at a higher level than what we've done before. And we've got the ability to not be -- smaller companies get nervous when someone comes and says, the market is getting tough, you need to get back some price. And we have a little more staying power to say that we're not doing that.

Okay. And of that list of 24, is it mostly in the specialized side, mostly on the conventional side?

All specialized today.

All specialized. So that's really where the focus is?

Yes.

But you would include dedicated within...

Yes, dedicated, we include in the specialized.

Okay. Okay. Let's talk about the market right now. So U.S. market can be very cyclical, seeing spot rates under tremendous amount of pressure. How do we -- what's going on in the Canadian market? What's going on in the specialty market? Are we seeing the same trends? Are those markets as cyclical?

Not as cyclical. They're a little stickier to the customer. So we're not -- so I watch our conventional van in the -- or like our potential truckload, and we're still not seeing the pricing pressure that we're seeing in the van side in the U.S. We still got -- there's still mandates at the border. So there's still restrictions at the border. So that's keeping prices up on that side of the world. And our conventional van is predominantly a cross-border business.

So I think in the third quarter, conventional yields were up, still up over 20%. How do we think about that going forward? Is that a business that can get -- could we get pricing in that business next year? If U.S. -- I know it's a different market. So if U.S. van pricing is down 5%, 10%?

I would say, in my opinion, if we hold where we are, we're doing a good job because there is going to be pressure. There's headwinds coming.

Okay. So it's just on a bit of a lag for the conventional?

Yes.

Okay. And then what about the specialized?

For specialized, we're still getting rate increases. I mean we're still going to customers and they're still sitting down and saying -- because what's happened during the pandemic and the lack of drivers is that their service levels have dropped because we just -- because of the disruption in the supply chain, their customer base for the customers we're hauling for have issues. So they can't manage their inventories as well as they used to. We're getting a lot of -- we're going to the customer, we're bringing product back. So it's really hurting our utilization. The customer is paying, but they're also having a problem because we're not getting that second turn on the unit. So the second load is late. So they're now running where they want to run 95% on-time delivery to their customers. We're now in their 80s and they're asking us, what does it take for us to get that back up? What is the model? So we're talking about almost like layering -- almost like excess insurance. You're laying and you want to -- you can layer a dedicated model over top of your regular truckload model. And that cost them so much per truck or fixed variable to be able to make sure that they hit that target. And then that's a price you give to them. And then they have to go have discussions with their customers and say, okay, here's how we can hit the service, but here's what it cost to hit that service. So there's still a fairly high service need inside the specialized market.

So it sounds like if we can keep conventional yields flat next year, we'd be happy.

I'd be, yes. Given what I -- we don't know what...

Right. Maybe that's unreal. It's down something, right? Okay. And -- but what about specialized? Can that -- I know you said you're still getting some rating increase now. Do you think that's a business that can get incremental price next year?

We can get incremental price. The issue we're seeing today is it's also going to come with a very incremental increase in equipment costs. Our -- we buy a multi-axle stainless tank to haul food grade product. 1.5 years ago, that was a $210,000 tank. Now it's a $270,000 tank. A truck has gone up in Canada almost $30,000. So...

So that in a typical downturn for -- in trucking, we see rates come down, but typically, we don't see much inflation. One of our concerns for the truckload market broadly is next year is the year where you could sort of get hit on both sides with rates down and -- but still have some real inflation. Is that something -- how do you think about the risk of sort of getting hit on both sides, both from a cost side and a pricing side next year? Or maybe do you believe that because of inflation, it's going to limit the amount that rates can come down?

I think it's going to limit it to a certain extent. And I also think it's going to be a lot of opportunity because there's going to be a lot of players that are not going to be able to get through it. So there's going to be lots of M&A opportunities for us with that because there's going to be guys that are going to say, this -- I can't -- equipment is going up, rates are being muted. And I've gone out and now I've given my drivers -- like the cost of a driver in the U.S. is substantially up from what it was. So now all those cost structure things in it, if the rate changes, to go back -- let's say, the rate change is 10%. That creates a lot, a lot of problems for a lot of the smaller mid-sized carriers that are family-owned to be able to get through.

Are you seeing evidence of stress in the list of targets that you've got?

Not so far -- and again, they're -- when I look at them, their ORs are in that 95-ish.

Even in this market, but it's been a really good market.

So there's -- and we do an EBITDA. But so it's not as -- it's not like our -- so you look at our specialized. We're like, I think, a 78 last quarter. We don't see that in those businesses. It's almost the same delta as what we would see there.

And what are the kinds of multiples that we pay on a -- for truckload businesses?

So it depends on the section. So we try to be -- we want to go as low as possible. 5 is kind of the number. We'll see in the really specialized where you get into the stainless stuff, that number is going up because there's a lot of interest in that from the private equity side and a couple of -- one company's owned by a pension fund and they're -- those multiples are being driven up.

And are we seeing those now start to come down again, those multiples?

I'll let you know because we will see where there's stuff -- I can't because we -- we've lost some because the multiples got outside our world. And there's some out there right now in the market and we'll see because we've priced them, and we'll see what happens.

Okay. Okay. So let's talk about margins. What's -- how do you think about the right range of margins through a cycle for your specialized business, your conventional business?

They're the same. Long term, on a 10-year average, we're between 80 and 85.

So we're better than that right now?

We've had pretty good tailwinds.

Sure. And so is this a business that can grow segment profit next year? Or does that seem challenging?

Well, we've had our budget meeting. I would say that we're going to be -- from a free cash flow standpoint, we're working hard to hit our free cash flow target. The margins may not be exactly the same, but we've got other things and other levers because free cash flow is what we measure.

So we have a potential to grow free cash flow next year?

We're just going to -- we'll have to be very -- we'll be very stingy on what we're spending in our -- and when we look at our acquisition targets, we'll see do they have excess equipment that we can push off our capital, use that as part of our stuff, so we can push off capital. And so it will be more of a -- we've never really looked at it that way, but we started to look, after my budget meeting, at taking a look at what the capital they have, how they're utilizing it and what we have up for capital play and then go and say, okay, so this will all -- this will be -- this is this number, but it will defer this capital number.

And so with that free cash flow, we can -- that will fund the next wave of deals?

Yes.

So maybe with deals, we have -- depending on how many we can get done, that will help the ability to grow next year.

Yes, absolutely. Yes, that's really our focus. From my segment is we need to grow our segment. When we lost CFI, we became a lot smaller portion of the business.

So we heard in the last session, we are behind on equipment, we need to spend money on equipment. Do we need to do that here?

So we are behind on equipment. Our stuff is coming in, and most of it in the fourth quarter. We -- our manufacturers on the trailer side, on our specialized stuff told us it was -- there was stuff coming. So we've had stuff on order for a long time. The biggest thing is, is during the cycle, though, they come back and they want more money before they'll deliver, but we're getting them delivered. And we've been -- so we've done a fair number of acquisitions, we've been getting rid of a lot of equipment. We have almost a full-time guy that does nothing but shed equipment for us because that's the #1 thing we find when we buy, is that they're overcapitalized, and we don't want to be overcapitalized. We're with -- as Paul said, with how we're structured and how we're measured, we want to be minimalist when it comes to equipment. We want the right amount. But having too much, it's not free. That is for sure.

But meaning, behind on equipment, but we want to be stingy on CapEx next year. How do we balance those two?

So we're -- in my group, we're not super behind on capital. We bought a company in May in the U.S. flatbed that had 300 excess trailers. So it wiped out my entire CapEx for the rest of my U.S. flatbed. We moved 100 to the coastal operation. We moved 50 to the new [ whole-world ]business. And then we have some out on rent, just while we're waiting to see what we're buying next because it was all really -- these guys were like UPS. In their mind, it was free because it was paid for, and there was no depreciation. And then we came in and we said, well, we're going to take -- we're going to use that for our new CapEx. So...

Okay. Let's -- just -- can we just -- maybe just going back to like a little bit of background on the business. Talk about a company driver versus owner operator. So how should we think about -- is this at -- meaning, how asset-intensive ultimately is this business?

Probably on our specialized side in Canada, we're about 25% owner operator. And then the other thing that we do to make sure we manage on the Canadian side our asset intensity is most of our businesses are running anywhere from 20 -- around 20% just pure brokerage. They're managing the customer, but it's being brokered. The guy may pull our trailer, may not pull our trailer, may actually bring his own equipment, but we have a very large number of, what we call, dedicated partner carriers, especially in our bulk business. When you look at our bulk business in Canada, everybody goes, it's our largest -- I'd say the bulk is the largest single business we have. Probably 35% to 40% of that is non-asset. And you wouldn't think about that because it's all dump trailers and stuff. But there's lots of small guys with 2 or 3 or 4 dump trailers that we basically -- we manage their fleet for them, and they work for us.

So just so I understand. You've got within specialized, we started in Canada, 25% owner operator. And then you've got another big chunk that is more brokered.

Yes, more brokerage.

And what percent would you say that is?

Depends on the business, but probably between 15% and 20% would be the...

Okay. So maybe it's about half of the specialized that's company drivers?

Yes. Yes, in that ballpark. Yes, in the Canadian side.

Okay. And then how about the conventional side?

On the conventional side, it's predominantly company. We got a few owner operators in our Ontario business, but predominantly, we are company drivers, but also have a very high portion of their business that's actually -- they broker. So dual logistics. Every one of our [ FAM ] business has almost like a logistics system. They have a customer that says, we'll do all your freight, but we haul what we can and we manage the service level, but we'll broker it out to a third party.

And we're hearing a lot from the U.S. carriers about power only. So we provide the trailer, but someone else provides the tractor. Are you doing...

Yes. And we do that in our van side, and we do that in our specialized side.

And has that been a growing part of the business for you?

Yes. Yes. Well, it's -- the issue we're seeing today is as the power has got older and the cost of the equipment has gone up, there's going to be pressure on that part of the market. And they're just not going to be able -- when it comes time to replace their power, it's going to be expensive for them.

Drivers, are we seeing any issues with drivers anymore?

Yes, there's still issues. There's still a shortage. On the specialized side, especially from the standpoint you're now an equipment operator. So that's -- but the turnover is less. So we don't have the same churn, but it's still an issue. It's still a big -- it's one of our biggest costs in our U.S. specialized is the recruiting.

Do you think we have another year of driver pay increase next year? Or are we kind of we're done...

I think you'll see that there was a big increase this year. I would say that probably more -- like not as much. I don't -- it all depends what the market -- it all depends how big the rainstorm is.

Any signs of that sort of rainstorm coming to an end, stabilizing?

No. Not yet. No.

Okay. I want to make sure we get to questions. So please...

[indiscernible]

Yes. So we look at the -- when that comes, we start to basically pull things in. And we work with our customers. At the end of the day, we have long-term relationships with our customers, and they say that there's going to be the other side. So if you take a look at one of our biggest building supply customers, they've been with us since 1908. So we've had a long-standing relationship. They are the ones that have asked us to cross the border and start a flatbed world. So we don't see as much -- because we're not in the spot -- we don't do as much in the spot market. We're more, I don't want to say contractor, but it's been a business that we've had for a lot of years. It typically doesn't go for tender. So we don't see as much. We will not -- we won't get rate increases, and we may have to get back a little bit. We don't see the big swings like in the spot market. We don't spend a lot of time in the spot market. And when you had something like 2008 and '09, if you're in the spot market -- and if you're in the spot market today, you're taking a beating because you had a really good time when you were running around at $8 a mile, but now you're going to run at $2 in the flatbed world or whatever because you're going to run the cycle. We kind of try to -- we try to keep in a range based on our customer base and the relationships. We're not heavy into the spot market at all.

So what percent would you say is spot market?

Probably 20%. We wouldn't -- during this time, we didn't go into the spot market. We have a steady base of customers in almost all of our businesses, and we -- that's how we run it. And that's how we keep -- when the storms come, that's how we keep it because now we're working with relationships. We're not a guy they don't know. So we're -- right now with -- everybody knows something is coming. So we're very popular right now to come and say, "Okay, what's going to happen next year? What's the driver situation going to be?" And what we're seeing in some of our customers is that where they had to have to bring the guys in, the onesie-twosie guys in, they're now going back and they're coming to us and say, "Are you stable enough now? Can you go put more power in here? We don't want any price difference. But when we work with you, it's a lot more efficient because you're a drop trailer, you're running through the chunk. These eyes are live load, we can't get the efficiencies in our plant.

But you still have 20% of your business in the spot market?

Yes, I would say. So when you're out running around across, will there be some that you got to go get some business that get back.

James Monigan from Wells Fargo. I wanted to touch on or follow-up on, I guess, the specialized sort of cost inflation that you're seeing. You talked about equipment. But what about the driver? Essentially, are you going to see sort of more driver pay come through? You said they were sort of a more specialized operator. So just wanted to sort of understand the outlook around that. And then when you talked about the inflationary cost of the trailer. Is that largely just raw materials costs coming through? Or that will like come back out? Or do you think that's actually sort of the new price going forward?

I think some of it will come back out because it is the cost of the raw materials and the supply chain disruption. And the other thing is they can't get welders. So they've got a system that they can't fill, so they got a supply chain problem on getting the materials and actually having enough labor to produce because it's -- when you're building a specialized trailer, it's super labor-intensive.

And then on the driver labor side?

We've -- they are already a higher price point than, I would say, a conventional van driver. But we'll see. I mean, we try to give our guys something every year. We don't like to hold on and then give them a bunch. We try to do -- that way, they're always keeping ahead. There's always inflation. So we're trying to stay current with the pricing with our drivers.

Yes, Tom Wadewitz. You mentioned you like dedicated, but I don't think you talked a whole lot about it. Can you just tell us a little bit more about how you envision that business? Do you want to grow it through acquisition, through U.S. acquisition over time? How do you -- what are kind of the key levers to improve the quality of what you have. So just a bit more on dedicated.

So I've had the dedicated for 3 months. So we're in the process today of -- so we have dedicated that I would call transactional dedicated, and we have stuff what I call the sticky stuff where you're doing with multiple customers, different locations, and it's very sticky. And you can grow that side of it. Where you've got -- you start with 2 locations, you do a good job, you move, they add locations to you and like, the retail parts guys is another one. The distribution where you take it out to the car dealerships, we have some of that. And then we have the transactional. We're looking really hard at whether we want to play in that transactional dedicated because it's -- it would be the lower return portion of that business for sure. So we're doing a lot of work today. A little bit like what Paul said, we've got a shared service agreement with CFI. We have a UPS business and a legacy TA business that haven't been put together yet. So we're working hard to put them together. We just cut over the TMS and the general ledger system last weekend for the legacy UPS business. And we -- by the end of January, we'll have it all in one back office and one TMS system. And once that's done, because we don't have great visibility of where the numbers are, except for as a whole. So we really can't tell what piece is going to do -- is doing extremely well and what piece we need to, say, well, maybe we need to move on and do something different. So we're hoping to get that done by the first quarter. And we are going to look -- if there's something in the market that's on the dedicated side, we would take a look at it. And even in smaller pieces. I have smaller pieces of dedicated in my other businesses, like a 35-truck dedicated deal that I have in my tanker business in the U.S. So there is little pieces, and we're going to use those -- that model and experience we have from the TA dedicated to help us grow that.

So where are the dedicated margins running right now?

It's about -- it's a 90 OR right now. But it was 100 -- I think it hit 111.

Not bad.

Okay. Konark Gupta from Scotiabank again. Sorry, David. I keep asking questions unless you ask me to stop here. So I think my caution for you Steve is 2 questions, actually. One, you talked about equipment, a lot of equipment that you have from recent acquisitions that you need to sell. Can you monetize or size the equipment opportunity here in terms of what can you sell? And second question is, you named, I think, 4 or 5 different business segments here, flatbed, bulk, tank, et cetera, which of those segments would you say are tracking below your expectations right now?

So on the equipment side, we've cleaned up a good portion of the equipment side from the acquisitions of -- even this year, because with the one we bought in Ohio, we've cleaned up most of his equipment and dispersed it. So we've done -- we're a lot quicker cleaning up equipment now than we were. We decided since we're -- we do so many that we got to have someone that that's their job because at the end of the day, if you don't -- if you leave it to somebody and you get them to piecemeal it, it never actually gets done, and we want to get that done quickly. So that's pretty well cleaned up. most of that is in the numbers of this year. And the second question would be, I think the dedicated would be what I would say I'm going to put a lot of effort into moving that to -- it needs to be -- go to the 85%. We want to move it substantially. We think there's a lot of value that we can pull out of that business. That's not there today. It's very new to us. It just was created and I think there's a lot of opportunity there. And one of the things I'm excited about, it's an extremely young management team, and they're excited about -- we've implemented the new strategy of how we do our equipment and things like that. So they're actually -- their budget meeting went a lot like how much equipment do you want us to sell and get rid of, because we had -- they had a lot of equipment. So we're in the process of doing that on the U.S. side. It's a little more difficult with them because we're so intertwined with CFI that the trailer pools are tied together. So we're trying to split the trailer pools strangely enough. It's hard to find a trailer sometimes. So we're doing all that. We're trying to pull that together. But we hope to have that completed by the end of the second quarter next year.

Great. Two more then we'll break. Right there.

Great. Ariel Rosa from Credit Suisse. So you mentioned the list of 24 targets. I was hoping you could give a little color on what's the split between U.S. versus Canada? And then also how you think about the attractiveness of kind of the U.S. market versus the Canadian market in the sense that, say, 5 years from now, what do you expect kind of the split will be for your business?

I would say it will be reversed, if not more. I would say we're going to be way bigger in the U.S. than we are in Canada. Canada, there's not a lot more to do. There's a couple of bigger ones out there, but there's not a ton more to do. Our opportunity is for sure in the United States. We're very small in the U.S. I mean, we're -- if I take out dedicated and I just look at my flatbed and my bulk business -- or my tank business, we're USD 200 million roughly. So it's not a big part of our business. But we're looking -- we would like to figure out a way to get into the dump market in the U.S. because we're very big in that in the Canadian side, and it's a good segment for us. So we are actively seeking something in that market. So...

Could you maybe elaborate a little bit more on kind of the differences in the market? Or do you see the U.S. is more attractive? Or is it just larger and...

It's larger, yes. I mean it's just -- Canada is 10 -- maybe 10% of the market, right? So the opportunity is for sure south of the border. And there's -- and again, there's just more opportunity. There are just more businesses.

Ravi Shanker, Morgan Stanley. Two questions. Can you give us an update on the Canada ELD mandate implementation? And how do you see that playing out? And also on the specialized side, some of your peers have had issues with claims in that business. And obviously, insurance rates have been going to the roof in the entire industry. What has your experience there been like? And kind of what's the future outlook there?

So on the ELDs, it's -- it becomes fully implemented January 1. So where we operate, it's going to be -- in Ontario and Quebec, it's actually -- that's mandated today, you're just not getting fines. And so we implemented probably 2 years ago. We've been running the ELDs for 2 years plus. We've had some companies we bought that didn't want to do the exercise of doing ELDs, so they sold it to us because -- and we did it, and they sold it about a month before they had to have them in. So we don't see that that's -- and it hasn't been a -- everybody thought it would be a significant impact on productivity. It's not -- for the good -- for the people that were playing by the rules, which is all -- most of us it wasn't a huge impact. It made us a lot more understand for trip planning and what we're doing with guys. That you made you a lot more diligent on what you're doing with your planning model, but it didn't really affect productivity as much as -- I mean, everybody heard that it was going to -- the productivity was going to go away. The biggest productivity thing, I think I see coming from the Canadian side of the world today is the 10 days where Mr. Trudeau has decided that every federally regulated employee will get 10 days paid sick leave starting -- I think they get 3 days starting December -- January 1, and then they get 1 day per month until they get to 10. So that would be the biggest productivity thing that we see coming at us, which is something we're going to be talking to our customers about because they have to pay. That's a regulatory thing. That -- we didn't do that. So that will be -- have to go into our pricing models.

And claims?

Claims is specialized. So, yes. But usually, our claims stay where we're funding it because of our -- our retained. So we don't see as big a deal on that as other guys that have got lower deductibles. But we -- so we see that impact in our business, and our guys are really diligent. When a guy takes an $85,000 or a $90,000 hit for a -- because something went wrong, he's a lot more diligent when he's the one paying that, right, in that check. And it hits his bottom line and potentially his bonus. So they're a little more diligent.

Thank you, Steve.

Thanks, Scott.

We'll take a break and we'll start at 10 minutes past the hour. [Break]

[indiscernible] from RBC.

All right. Shall we get started? Okay. Thanks, everyone. Thanks to both of you for having me up here today. We've got Chris and Rick on the Canadian LTL side. And Alain mentioned this was the start of the company, the beginning, the origins of the company. So it's great to be able to look back and talk a little bit about this great success story that started with Canadian LTL. So perhaps what we'll do, we'll start on the macro, the overall market environment. Perhaps you could describe a little bit the demand environment, specifically as it relates to Canadian LTL. Are you seeing some of that weakness that economists are talking about? Are you seeing it in the front and center, on the front lines of what you're doing every day?

Because we're a tandem, we're going to ham and egg it.

Yes, I'll take the first.

Yes, the ham can go first.

Yes, great question, Walter. Yes. So much like Paul in the U.S. experienced in the LTL side, we had a pent-up demand in Q4 due to damaged supply chain, really leaked over into Q1 and Q2, which were also strong for us. Q3, we -- I guess, we can call it a softening. We like to call it a more normalization between capacity and demand. In Canada, we're not -- we don't see the highs and lows that they do in the U.S. We have a lot of social programs that support companies, that support individuals. But we have seen a softening of consumer spend. But we're still dealing with the same issues, shortage of drivers and shortage of equipment.

Yes. And how much lead time would you say you would see? So if we are going to see a recession, when you look at the way orders come to you, what kind of lead time do you get when you see any -- a big -- if a big drop-off were going to come? How much lead time would you have roughly?

Yes. We don't get a ton of lead time because you sort of -- you don't know how you're going to bake a cake tonight. Every day we go in and we have to bake a cake, you don't know what the ingredients are going to be. You don't know what customers are going to be busy. We have connections with some customers, but not all of our customers, so it's really hard to tell. But we have a lot of tools in place, I'm going to say tools, tools, tools. Plenty of that word. We have a lot of tools in place to deal with like daily cost tracking and volume tracking and where the volume is coming and going. So we're on top of it every day.

All right. Well, we'll get back to the tools in a moment. But perhaps while we're sticking to the demand environment, talk to us a little bit about pricing. Obviously, it's been strong to date. Are you seeing any pushback? How is the competitive dynamic? Are you seeing some smaller players perhaps pushing a little bit on price? Describe overall the pricing environment for us.

I think we're seeing more RFPs, we're seeing more tenders because customers are trying to push back. But really, the formula of doing our business hasn't changed. There's still a shortage of drivers. There's still a shortage of equipment. There's a lot of inflationary pressure on the price of equipment like my peers before me talked about. So it's hard to give up on price. And we see the Canadian marketplace as being fairly disciplined. So we're still getting our price increases. So I think we're okay.

Now is that discipline happening because you've seen consolidation now in the Canadian marketplace? Is that different in Canada versus the U.S.? Has it changed over time so that if we go into a recession now, if we look back at how it worked with '07, '08, will we see a different environment this time around because of a higher degree of consolidation that's happened in the Canadian market?

Yes, I think there's a lot more consolidation mainly because of Alain and us. Like we've consolidated a lot -- we have consolidated a lot of the marketplace. So I think it will be a much different experience this time around.

I used to cover a lot more Canadian trucking company.

Yes. Well, I think you can kind of count the amount of public companies on one hand, right? And for the most part, they're not very big. And then even if you get into the private market, there's not that many. A driver cost what a driver cost, a tractor cost what a tractor fuel is, diesel, but retail pump is like CAD 2.25 a liter. It's still a cost of doing business. So we're very disciplined at passing that along to customers.

So let's move from overall market now to your specific businesses. And perhaps you could describe a little bit the types of hauls that you do in Canadian LTL. Who are your largest customer segments? A little bit on that business mix type of a...

Yes, there's less manufacturing in Canada. We do a lot of retail, a lot of grocery. We do, do some industrial. As Mr. Bedard has said, we try to look for freight that's heavy in a tight geographic area. So industrial freight hits that heavy metrics for us. So we try to move a lot of that. And we're trying to switch into a lot of industrial now as retail has softened in this last quarter.

And from a road perspective, I would say we have some more automotive and we have a fair portion of retail. But we're still doing quite well with it.

So how would that differ if you're to compare -- obviously, U.S. LTL has become a big focus given the size that's representative of the company today. But how would you characterize the big differences between Canadian LTL and U.S. LTL?

Yes, I think the biggest difference is we just don't move freight that's unprofitable anymore. We've been doing this for a very long time. Between 2014 and 2018, we acquired several LTL Canadian divisions. That's where I started my career at TFI, with one of them, Vitran Express. Those divisions were all doing mid-90 ORs. So we've just implemented our processes, rationalizing resources, making sure we're doing freight that fits, making sure we're doing dense freight and freight that's in a tight geographic area, rinse and repeat. It's not a start and an end to that process, it's something that just once you've done it once, the next year, what do we do? The exact same thing. And I think that's the biggest difference between us and the U.S. is just we've been at it a lot longer and they're more in their infancy periods with TFI.

And is competitive dynamic at all a factor here? Again, a small -- we were talking about a much larger marketplace in the U.S. Does that make it more difficult to deal with? Or does it give you more opportunity? Maybe describe, again, the difference between Canada and U.S. Is the relative size a factor in how you run your business day to day?

Yes, I think every challenge becomes an opportunity, right? So I think there is more competition in the U.S. But if you look at the competitors in the U.S., a lot of them know what they're doing. They run very good businesses. And I think Paul and Alain spoke to it before, Paul's business in the U.S. is no longer a side hustle, it's part of our core business, and we'll just take the core fundamentals that we have in Canada, and everybody and Paul's team has embraced them. So it's just going to take a little while for execution.

Yes. And when we compare the 2 now, as you mentioned, it's not a side business anymore. It's a very significant one. but it's one that has a margin differential that's quite stark when you compare your business to that of the U.S. U.S. has obviously improved significantly with some of the culling that we heard about, but you're running at, I think, in second quarter here, a 69 OR, that's pretty darn good. Can you talk a bit about what has allowed you to be able to go to that level of an operating ratio and particularly relative to a peer base that is not quite at that level?

Yes. I think it goes back to the same answer as before, just we've been doing this for a tremendously long time. The TFI culture is ingrained within our Canadian LTL divisions. Our management team, we've got a lot of killers out there that just focus on OR day in, day out. And just doing that year-over-year, year-over-year, rationalizing the business, again, rationalizing our customer base, we're not moving freight that's at 140 OR. We let our competitors move that freight. We're looking for, again, ORs in 60s, 70s, and that's a better bet freight that fits our business. And it helps us rationalize our business also because we can -- instead of going to pick up 1 skid, now we're picking up 10 skids, right? So creating that density. We don't chase $50 bills anymore or $100 bills where you're picking up 1 skid.

And I think I would add to that beyond the TFI consolidation in the market, we've gone through TFI consolidation within TFI. So if you go back to 2017 and prior, we had multiple LTL brands. We might have 3 buildings in Vancouver. Now we have 1 building in Vancouver. We only have 1 building in Vancouver, you only need 1 manager. So we've gone through a rationalization of our LTL divisions, both on the rail and in the road. And I think that's what led us to this point.

So would you say, given the way that you approach business, looking -- going after that type of OR business, can it get much better than 69? I remember when I covered rail way back, 69 was -- would have been amazing for a railroad company. And now you're hitting it as a trucking company. Can you get much better than 69 or is it now you feed the beast at 69, you grow volume in that 69 and turn at that level to get higher returns going forward?

Paul hasn't done his budget. Steve has. I have. So...

Paul is behind.

Yes, exactly. Good luck, Paul. I left a lot on the table for you to pick up, by the way. So we are budgeting for a little bit softer, but Alain's kind of motto is we under promise and over deliver. I think, to maintain a 69% is difficult. So I would say, for us, really, the opportunity is for us to grow where we are now and just put more dollars on the bottom to become a 60%. Well, I can tell you with my team, we were running on 90% and they thought anything with an 8 was never going to happen. And okay, we got to an 8. And okay, we moved the bar. Let's see if we can start it with a 7. Okay. We set it. There was never -- if we go back 5 or 6 years ago, there was never a belief that a number can start with a 6. So I just think you've got to believe and keep working the process and drive volume through it.

So let's talk a bit about now what are the challenges hitting you on maintaining that 6. And we talked a bit about inflationary pressure, labor and equipment in particular. Is that something that could be a factor next year that will derail you from that 6? And how are you managing around that?

So I'll start, and you can finish. I don't think that's the case because very much like what Steve said, there's still problems with equipment. There's still problems with drivers, there's still costs. I think the market understands that you have to pay more. And I think it's much easier sold when everybody is talking about inflation, everybody is talking about that. It allows us to get price. And as long as you're still an efficient operator, it will manufacture a similar bottom line. Don't let Alain hold me to a 69, let's say something similar.

Okay. We touched a little bit on regulatory. Do you see anything that's having an effect? We heard about the 10-day sick leave. Anything in your business -- that obviously would be affecting you as well? Anything else that we should be aware of on the regulatory front that could...

I think Steve's stole our thunder.

Yes, I think Steve's -- the 10 days is probably the biggest impact to our labor force. The labor force was already tight. We're still dealing with COVID issues, shortage of staff, silent retirement that's out there. So labor is important to us. We need obviously bodies in order to move freight. And with the extra 10 days that will be awarded to individuals, that's just 10 more days that we have to try to fill that labor pool.

And the only color I'd add to it is it's impacting everybody. So when something happens, it just impacts us, it makes it headwind. But when the government puts a policy in place that impacts everybody, everybody has the same headwind. And hopefully, with ELDs, a few more mom-and-pops will drop out. To Steve's point, some people that don't want to play, maybe they disappear and they get on companies that already have in place. We've been running it. There are some other problems in Canada with like Driver Inc. We just want everybody to be legal. And if everybody is legal, that just benefits us.

Yes, level playing field.

We heard and you mentioned the word tools, and we heard Alain talk a lot about those in the third quarter call. Some of those have been implemented certainly in the Canadian LTL side, I think, particularly since 2017. How would you compare how you operate today to perhaps 5 years ago as a result of new and more technological tools that you're advantaged?

I think when we buy a division and integrate it, we look at what tools, tools, tools they have. And then decide if we can get the information out of their tools to be able to run an efficient business. And where they can't, we make changes. And we have experience with software programs that are out there. So we implement them. So some of the divisions that we've bought over the years, you ask questions, they don't have answers. And we help them -- because we have the experience with those software packages to get the product that can get us the answers we need to run the business.

Yes. We call our tools profit drivers now. That's the way we look at them. Not just tools for the sake of measuring, they're tools for the sake of actions that we can implement on the business in order to increase our OR.

Tell us the Guinness Book of World Records? Where are we at? Do we need like 10 more tools?

So now we only have a little time left before I want to turn it over to the floor. So I want to go into the future a little bit, technological development, innovation, potential disruption. What are you keeping your eye on? Obviously, autonomous trucking is something that is talked a lot about here in the U.S. particularly. Can you give us a little bit of your view on that topic? Is it related all to LTL, Canadian LTL? Just curious to your view of autonomous.

There's no autonomous trains yet, and everything gets delivered by a truck. And you can do maybe more from a truckload standpoint, but not running a pedal. I'll be long retired and in a box before the technology gets there or replace a man or a woman driving the truck and doing deliveries, the same.

Yes. No, I agree. It's the same thing. It's -- right now, essentially, we would use -- if we had the ability to use autonomous vehicles, it would just be for final mile delivery for us. Again, the longest haul is still the cheapest through rail or road.

So are there any technological developments in the pipeline that you're keeping your eye on that may have a positive or negative effect on trucking?

I think Paul said it up earlier there. I think anything we can do with route automization, anything with line haul automization. In the U.S., it's very class-based. In Canada, it's very dimensional-based. So as we get better technology around weight capture, dimensional capture, making sure we know the data on the product we move, as that technology gets more sophisticated, I think it's an enhancement for us.

And I think a lot of it will be customer-facing technology. It's where probably LTL locks right now, just giving live updates to customers. The P&C division is way ahead of LTL in terms of technology that would be customer facing.

How do you also look at the concept of near-shoring that's come up a lot with the pandemic? If that comes in -- if that starts to happen more often, is that not a pretty big opportunity for trucking?

I think it helps LTL because the order sizes are going to get smaller, right? It's going to go from DC to retail DC to manufacturer. I think there's an opportunity for us.

And what about on the flip side, just in time, right? I mean that was something that helped trucking back in the '80s, took share away from truck -- from rail, perhaps that's more on the truckload side. But do you see any shift toward or away from just in time to just in case as being a possible detriment or a negative for you going forward?

I don't see it yet, no.

Yes, I don't see it yet either right now.

All right. I'll turn it over to the floor for questions.

Any questions for Paul? Do we have any more questions for Paul?

This is Fadi Chamoun from BMO. I want to follow up on the growth question that Walter just asked. Is there M&A opportunity still in the Canadian market for your LTL business to go after? Is this fairly consolidated at this point as more of an organic growth story? And if it is organic growth, it hasn't really been that strong historically. How do you -- like what are the levers that are going to drive the business growing?

So I think the opportunity for us in Canada are small LTL players. I think anybody of scale is probably out of scope for us. Although there is some opportunity, it's -- if we can get it through the Competition Bureau. I think more for us the opportunity is south of the border. There's big players, but there's hundreds of small players that still add scale to us. $10 million, $20 million, $50 million, $100 million, very much like Brookshaw's philosophy, so there's an opportunity. But from -- to dig the second layer of your question, I think there is growth opportunity in kind of domestic organic Canadian LTL. We've spent a lot of time cleaning our house up, getting the freight that fits going through the same process Paul is. We're very much now at a stable state and trying to get it on the next level. Last year in one of my divisions, we started to handle the Canadian business for TForce Freight USA and TForce Freight Canada. When you go through big integrations like that, it can be disruptive. But once you get through it, now you're in a stable state. Now you're ready for that normal growth. And I would say for our combined LTL operations from '17 to current, it's just been one state of change after another. A lot of it was caused by us, and then a lot of it was us reacting to things. 2020, what are you doing with COVID? Now as we come out of this uncertain time, I think we'll have a better opportunity for organic growth. Yes, in the back of the room?

Yes. It's Ari Rosa with Credit Suisse. I'm just curious to hear, obviously, TFI has gone through this kind of transformative acquisition with UPS. To what extent do you guys get involved in discussions with the U.S. side of the business and maybe giving them some guidance on kind of a game plan?

So my informal title is angel, and this is my...

I'm a junior angel.

He's a junior angel, and McGonigal is also an angel. So with this acquisition, we just coach Paul in our culture. So Paul is down in the U.S. doing this thing, but we're just working with him so he understands what we do because we understand the urgency of the speed.

We're really trying to just teach the culture to the U.S. side. What we've done, the successes we've had, how we've had them and really just supporting those activities.

And Paul thinks we're devils. So...

Kevin Chiang from CIBC. Just wondering, you talked about the sub-70 OR. And you've done that with the pricing environment that's less favorable than what they see in the U.S. When I look at revenue per hundredweight or per shipment, is there an opportunity to increase or accelerate that yield performance as you think about some of the mix shift you talked about, maybe chasing more industrial volume or even with the concentration in the industry, just it would be more rational. Do you think there's a step function change on pricing available?

I think there's an opportunity, although I'm not prepared to commit to it when Bedard's in the room. So if he wants to leave, we can talk. So we -- it's our goal to stay in the 6s. It's just we don't want to commit to it. But there is the opportunity with where the market is, and it is not as favorable in Canada, but we've been able to manufacture it.

I think the market is also still ripe for a general rate increase. Inflation is high in Canada, 6%, 7%. It's got to be offset, those inflationary costs. So we still see price increases in 2023. So...

And because we're the little brother or sister north of the border, we just emulate them anyway. So we might not get a 7.9% that gets advertised but we'll push for 6.9%, we'll push for 6%. We'll push for 5%, and we're very aggressive. And because we have such domination in the U.S., we have good market information. So we know what our competitors are doing. So we know what makes sense for us to do, and we try to push it.

It's Ken Hoexter from BofA. I'm just still a little confused on the ability to chase industrial if you're still the dominant provider, yet you're saying there are not many opportunities to buy others. Who's got that business? Or are you creating new LTL business? Or are they not shipping it now in LTL and you're trying to convert it to LTL?

Yes. So I don't -- I'll take a stab, and then Chris can clean up what I screw up. So I would suggest to you in Canada, we don't have as good a data on the market as they do in the U.S. I think there's -- it's very -- it's a bigger market, it's much more data-driven. So I don't have good factual numbers, partially, because a lot of our competition is private. So I don't know exactly what market share we have. But I would suggest we probably have something like 10% to 20% market share in the road LTL in Canada. So that other 80% is an opportunity to us. And some very large private carriers are there that we can compete with. And now that we have a little bit more flat water, I think we can do better. And we're seeing some of our competitors in Canada just be more responsible and logical. So that gives us an opportunity to pursue those industrial customers, the higher weight shipments, just the better style of freight.

And I think as we get sharper, again, we're always trying to get better. So we weren't maybe as focused in chasing industrial freight. We're chasing a lot of retail, which was booming at the time, a lot of grocery, consumer product goods. Now again, we're trying to focus a little bit more in that market. So it's not that we necessarily, just before, I guess we just didn't have the same laser-type focus as we do now. And now it's more of an internal mandate, let's go try to chase that business so we can get the higher densities.

Yes. This is Benoit Poirier from Desjardins. Just looking at the intermodal business, you've been consolidating that space with the acquisition of Clarke, Vitran, National Fast Freight. I would be curious to get more color about the size of your intermodal business these days, whether you've been successful at improving the margin to the proper levels. And how does it compare in terms of profitability with the over-the-road business? And any color about the strategy going forward for the intermodal?

Yes, the Intermodal business and the entities that you mentioned there, Clarke, Vitran, National Fast Freight, well, first of all, they all have their own space in the market. Clarke is an industrial mover, primarily on the steel side. National Fast Freight would be more of a retail based. And then Vitran is sort of a gravel. It's just -- it has such a large network. It can take a large freight and large amount of freight from different customers. The Canadian market in terms of margin, we are dealing with 2 rail providers in Canada between CN and CP. We maintained strong relationships with both. And I think there's -- on the road side, there might be -- and I'm not going to speak for Hashie here, but there might be a little bit more opportunity for margin just because he doesn't have that dynamic of dealing with the rail. And that rail component for us could be upwards of 35% of our total cost.

Are you mostly CN, though?

We are nicely balanced now is what I would say.

I wouldn't answer that one. All right. Thank you very much. Well, thank you very much, Rick and Chris and everyone. I appreciate the time.

Okay. Next up, we'll cover P&C with Bob McGonigal and Benoit Poirier of Desjardins.

Good. So good morning, everyone, and good morning, Bob. Thanks very much for having me, and it's a pleasure to host this panel with you. So the P&C segment now represents 7% of total revenues. It's been growing through acquisition with ATS Andlauer, Canpar, later with the DHL Canadian business and ICS. So could you talk about each business segment and how they compare each other?

Yes. First of all, thank you for covering us for as long as you have, Benoit, so we really appreciate it. I'll just go through the 4 divisions that you kind of mentioned there. So they differ from each other in the markets that they operate in. But Canpar is pretty much a B2C business that's company-owned equipment. Loomis is an owner-operator type of business, and it's more of a B2B type of business. Both national networks, they do cross over in places and help each other out in some of those markets. TFIS is really a retail mall type of business and also offers a little bit of LTL and truckload within their business. And ICS is a niche market. It's really a small package play and specializes in certain verticals such as the dental, the optical and the hearing, and there's a big opportunity in that niche market. That's kind of the difference between the 4 divisions. It's a great service offering because we offer all those different services within all those different verticals.

Okay. And when we look at the acquisition of DHL's Canadian business back in 2011, it was a turning point for the P&C business. It brought you into the major leagues with FedEx, UPS and Puro. So could you talk a little bit about the market dynamics in Canada with those big players? And how do you compare with them?

So I'd say the market dynamics are -- we have a huge geography to try to service. Those players are -- have the greatest market share. We're a very small piece of that market share compared to them. But we have a niche, right? We're very nimble. We're very flexible. Our service offering to our clients can be adapted to what their needs are. The bigger players sometimes try to fit them into their box and how they operate, where we don't. So for us, what I see is we have an opportunity to gain market share through how we offer the services to the client and through our actual service on-time delivery.

Okay. And looking at e-commerce now represent close to USD 600 million, about $125 million is part of the P&C. So could you talk a little bit about how e-commerce is doing these days, more the split about the B2C, the B2B? And what's the strategy on the e-commerce side, Bob?

So we saw softness in the market probably on the B2C side last September, October is what we're seeing. And we could see that right through peak. Peak was completely different at the end of last year versus prior years. So it's -- what we're seeing is it's accelerated tremendously, the B2C, and how it affects our business. And it's about 10% higher than it was pre-pandemic, and it's leveled off there now. It's still down versus the pandemic years. However, we see it 10% higher than pre-pandemic. Our focus is really try to drive density in the B2C market. If we can't do that, we really don't want to play in it. So for example, one of the biggest e-commerce customers that we all know out there, they could drive us all kinds of business, but if it doesn't fit our network, it blows us up and it drives our costs through the roof. So for us, we really want to take the business that drives density into the B2C business.

Okay. And just looking at the profitability, how different is the margin differential between B2C and B2B?

So B2B, we make really good margin. But we have to remember, there's always a mix. So B2C has really got yield because we charge more for it. But if you don't have the density, you don't get the margin. So that's why we're always looking at density. There's going to be a theme here during our questions, it's going to be all about density for us. That's why we're so successful. Every piece of business we look at is how can we become more dense.

Okay. And looking at the third quarter results for P&C, revenue were down kind of 10%, driven by obviously lower packages, but also revenue per package. How should we look at 2023 for the overall P&C business in terms of both volume and revenue per package?

So revenue per package is down significantly due to the fact that our B2C is down. Again, I was talking about yield, right? There's a lot of levers that drive that. I mean, it's the mix between B2B and B2C, as I mentioned. But I think for 2023, it's going to be -- we're going to grow our business strategically, as I said. So on the B2B side, we're feeling way more comfortable because the malls are open, the stores are open. We're seeing more consumers wanting to get out. On the B2C side, it's just going to be strategic for us. So we do see growth, and we're being very strategic in which one of those divisions were doing, and we're cross-selling the divisions depending on the customers' needs.

Okay. And Amazon is obviously an important player, and many P&C players try to do business with them. And since Amazon is recognized as a disruptive player trying also to bring in-house some transportation capabilities, what is TFI's strategy when dealing with Amazon?

So that's a very good question. And our strategy is very simple. We'll play in their sandbox when it suits us. If it drives density where we want it, we'll take it on to an extent. We won't take it in the zips that we don't want to. We want to be in the major metropolis that's driving significant density within our network, filling capacity, knowing full well that, that freight could disappear at a moment's notice, as most of us in this room at TFI has experienced at some point or another.

Okay. And looking now at the revenue mix, you've been making some acquisition. You've got more exposure with the pharmaceutical space, financial sector also. Would you be willing to further improve your exposure to the pharmaceutical sector? Do you see opportunities? And among your different sectors you serve, where do you see the greatest opportunities going forward?

Yes, I feel like you were sitting in our budget meeting yesterday because we talked about this. But definitely, pharmaceutical is an opportunity. We're currently working with not only some of our customers that we already do pharmaceutical business with and looking to expand with them, but some of our partner carriers, some big players that we have global relationships with in how we can work together and expand pharmaceutical within Canada. So we're -- we think it's a huge opportunity for us. Some other areas that you were asking about that we can expand in is, again, I think we talked about we're really good on the optical side and ICS and we're looking at the hearing, the dental. Those all go to the same stores. So if we can get more of that type of freight into our trucks, it really drives the cost out on our delivery costs because we have more freight going into the same place. If you think about walking into a Shoppers Drug Mart here in Canada -- or in Canada, excuse me, you have all those products in that same store. So we're looking at service offering we have on those verticals and expanding it to like verticals within the customers.

Okay. And P&C for TFI is really focusing on next-day in Canada, while if you look at last mile, you serve both sides of the borders. So how different is the next-day business in the U.S.? And is there an opportunity at one point to go south of the border? Or you should stick to the Canada when we look at the P&C and the next-day business?

Well, I'm going to hedge that question with this answer first, you never know what we may do. But I'll say this, we -- those -- the U.S. market is all the big players. And we have partnerships with those players, and we do business cross-border already with a lot of those players globally. So for us, we're probably not going to go play in that sandbox right now. But again, remember what I said at the beginning, you never know what could happen. We're going to concentrate on Canada. We're the experts. We believe we're the best operators in Canada, and we're going to continue to grow that.

Okay. And every quarter, Bob, you disclose a lot of good operating metrics in terms of revenue per weight, revenue per package and everything. What would be the key metrics that we should be looking at going forward to drive more revenue growth and drive some margin improvement?

The key metric that I always look at is profitability first. That's instilled in us at TFI. But obviously, we do report a lot of good operating metrics. Behind those operating metrics are a whole bunch of other KPIs that we use on a daily basis. Every day, I look at what is my revenue report and what is my piece count. So that drives revenue per piece. But behind revenue per piece, it comes to what is the mix between B2B and B2C. What is the -- how many pieces per shipment are we getting? And if we can -- we're looking at that on a daily basis to a customer level to see if any of that mix has changed. If that mix changes, then we know how it's going to affect our margin, and we adapt to that. So revenue per piece is a very important metric to look at, but you have to take into consideration that there's a lot of factors behind it that affect it. And we are looking at those factors on a daily basis.

Okay. Looking at P&C, it's now about USD 650 million. How do you see this segment 5 years down the road? And what would be the key levers to get there, Bob?

Yes. I mean, we're all fighting for the same piece of business right now in Canada between all the players. So for us, the growth is in the exact same pool as the rest of the sharks are swimming in. So we need to really go after our customers' freight, which has been a big target this year for us. We're seeing that some of our competitors are distracted, I'll say. They got to fill their new hubs that they have. Maybe they're bringing back on the Amazon business and that's blowing their doors off. So we see an opportunity to really go after some of their business and grow that business where the density makes sense. We really, really, I can't stress this enough, drive density. Wherever there's capacity, we want to drive density without creating additional routes. So the growth, we see growth for sure. It's going to be a slow growth, but it's through taking market share.

Okay. And in terms of profitability, back in 2021, you achieved an EBIT margin close to 19%, but you were successful in raising the bar to 28% back in Q3. So where do you see the margins evolving over the next few years, specifically for the P&C business?

Yes, I can say the October numbers aren't out yet, right, Rick? But ultimately, it's better than 28% for P&C. And Q4 is going to be strong. Over -- I think we have to look at it this way. You're going to have really good years, like we're having a fantastic year this year. There are some tailwinds with fuel surcharge. That's not always going to be there. So over a 10-year period, with the ups and downs between -- over those 10 years, it's going to be in that 80 OR, that 20% margin.

Okay. And now when we look at your fleet, you had almost account of 1,000 vehicles last quarter. How young, how efficient is your fleet right now? And do you see an opportunity to go electric at one point or use some alternative energy sources?

Yes, I'm really glad you asked that question. Our fleet in the P&C is a perfect fleet to look at electric. So our average age for our power units that we own, because we're a very asset-light model, is currently about -- just over 4 years. And with the CapEx that we just submitted yesterday in our budget, it will be down to about 3.5 years. Our trailing fleet is just over 7 years, and it will be down to just about 6 years after CapEx, if all the CapEx comes in. We've had problems with supply chain. So as long as that all comes to fruition, we'll be good. As far as electric vehicles, I'm happy to say that we already have 5 in our fleet that showed up this year and we're running. We found that the battery power is about 160 kilometers for -- on a one charge. What we're doing is we're assessing our fleet and how many routes we have and how many are under that 160 kilometers to determine if we can have more electric units. And about 50% of our company-owned fleet can make that happen. So we're investing next year in another 12 electric units. We need to vet through the winter to see what the reaction is and if we get any degradation on how many kilometers we can get on a battery charge. I just want to point out, the other alternative fuels, if you want to call it that, is we are using a lot of propane. So we have propane gas conversion units that we've done. And after our CapEx next year, we're just about 45%. We'll be 55% of our fleet will be either gas propane or electric. So we're really, really proud of what we're doing to reduce our greenhouse emissions. And we think this fleet is the perfect fleet to test all that for the future. I think -- I don't know if you mentioned hydrogen. We've had a bad experience with hydrogen in one of our other business units, Paul can attest to that. Those units -- sorry, that was LNG. The hydrogen units, I think, are still in their infancy, and we have to test that out, and we'll let other people vet that out and work through those problems.

Okay. And maybe last question for me before I turn the floor to -- for questions. But looking at inflation and fuel, there's been some big increase this year, how do you deal with the fuel surcharges specifically for P&C? And maybe if you could talk about the labor situation, specifically for your business segment, Bob.

Yes. So the fuel, obviously, we pass it on to our customer base with our fuel surcharge program, which is posted on our website for anybody to see. And the other thing we do is we run a very efficient fleet. We're -- we have a very good density, we're efficient and we have excellent routing technology, so we make it even more efficient. So basically, what we're doing is passing on the cost, and we're making sure that we are efficient to reduce our costs at the same time. With that, it's kind of the magic elixir that really controls the high cost of fuel right now. And we're using propane rather than the high cost gas and/or diesel. And that's at about 50% less cost than what gas is today.

Perfect.

Ravi Shanker from Morgan Stanley. Bob, what do you think is the future of e-commerce supply chains between ship from store versus the traditional kind of DC-based fulfillment model? And kind of what's the view in Canada versus the U.S. from that perspective?

Thanks, Ravi. I think you're still going to have your hubs that you're shipping from or your DCs, that's not going to change. I know Amazon is looking at that because they have some extra capacity there. But ultimately, we believe that's really going to be the same pattern in Canada anyways. As far as the U.S., I don't see that changing as well. I mean, I'm more attached to the Canadian market right now. But there is definitely some same-day deliveries that people require from store to consumer. We are looking at that market. We have to have the right amount of density, again, and the right business unit that's doing it with the right type of equipment. So we are looking at that, but I think that's going to be a smaller portion than the current traditional way of doing business today.

Jordan Alliger, Goldman Sachs. You mentioned density, as you said quite a bit during the presentation, UPS and FedEx have been searching for that for a long time and have talked about different programs they're rolling out, technologies, et cetera. So what's -- how do you look at it? And how do you envision driving that density so you can make B2C where it needs to be profitably?

Yes, that's a great question. And I don't want to give away all the trade secrets to those guys, but we just basically price based on where we know we need density. So we'll adjust pricing downward if we have to, as long as we know we're going to get the density that's going to drive out the cost. Because we can drive out the cost at a greater rate than what we maybe dropped the price. That's really what we're looking at. So we go ZIP to ZIP to ZIP. And today, what we're doing, we're using ICS as our test model as we're building dedicated B2C routes. We never had that before. You do some B2B, then you'd go off-route to do your B2C, and we have new routing technology that we've implemented on our handhelds, which we think is going to really help drive routing optimization. So with that, in conjunction with what the market is asking for, we're going to drive some new B2C routes. And that's how we've gotten the density. We just continue to look at it that way. Hopefully, that answers your question, Jordan.

It's Tim James with TD Securities. I'm wondering if you can dig in a little deeper on your day-to-day strategies for taking share from competitors, which seems to be a theme that you've mentioned a couple of times here. Is it possible to provide some anecdotes of how you do that in terms of what you offer the customer relative to kind of what's in the marketplace currently?

We look at our current business, and we say, "Okay, this is what we're doing really well at. We have really good margin with this type of vertical." And then we say, "What are the like verticals that are out there? And our competitors happen to have that business from that client. So then we'll go target that business, and we'll go to them with our service offering that we think is better. And maybe there's a rebate program depending on volume that we pick up. And we know it's successful over here, so we go to them, we present it to them with a true case of this is how it works for this customer over here, and we're seeing success with that. The other thing we're seeing is our competitors are struggling right now. They've tried to take on extra volume to pay for maybe brand-new hubs that they've built. And we are having the customers coming to us and telling them that they're having a very severe service problems. And we're talking about some significant customers that we're seeing knocking on our door right now that we believe are going to be real opportunity moving into Q1.

Bob, [ Kent Renner ], a private investor, formerly Chief Accounting Officer with XPO Logistics. Just to double-click on the fuel surcharge. It's a significant portion of your EBITDA last quarter. And given where diesel rates were, gas rates were, how sticky is that going to be as you see fuel compress, if it potentially does? And then second question is around the technology on the handhelds. Can you talk a little more about that routing technology?

Sure. I'll talk about the fuel and then remind me if I forget about the routing technology. But the fuel, we do feel -- I mean, it's sticking high. With everything going on in the world today, we don't see that coming down. Now we just had our budget meeting yesterday. We were a little bit conservative on what could happen potentially into the middle of next year. But right now, I mean, it's still at its all-time high. So our fuel surcharge is sticking. The customers see it. They see the inflation, they see it at the pumps. They don't ask questions. I mean, it's just the reality. It's out there. Everyone sees it live. So we do feel it's sticky. As far as handheld technology, it's ever evolving. The market's ever evolving with technology and we need to evolve with it. It's the same thing on our operating mentality is we have to evolve on a daily basis because the market is changing. We have to be dynamic. We have to be nimble. So when it comes to our technology, we are building a bunch of in-house handheld technology. You can never keep up to what's changing in the world. So we went away from that. We went off the shelf, and we just implemented it this summer. So we're still working through it, but we see that it's going to -- it's really got great routing optimization for us. It's going to give us opportunity to reduce labor costs due to the fact that now the sorters can sort to the trucks rather than the drivers coming in, sorting to the trucks and then having to go out and drive. We see real opportunity in cost reduction with our technology.

Bascome Majors, Susquehanna. You've built a surprisingly profitable business in a competitive marketplace with 2 dominant players on the private side and government entities competing with. Is there any incremental M&A opportunity on your side of the border to scale us further? Or are you happy with the size and just doing it organically from here?

Yes, that's a good question. I mean, we really don't see a bunch of M&A opportunities. We're the smaller player. There's not a lot of real small players in Canada. We'd have to do something significant, which would be a very difficult thing to do in the Canadian market. Never say never again, TFI. But in the U.S., I don't think we're currently looking in that direction, but we may.

Okay. I think we're going to move on. Thank you.

Okay. Thank you very much. Thanks, Benoit. Appreciate it.

Thank you.

Okay. Next up, we're going to cover logistics. We'll have Kal Atwal up here, and Rick is going to come back up, hosted by Ravi Shanker of Morgan Stanley.

We'll give Kal the hot seat.

Great. Gentlemen, thanks for having me. Saving the best for last, clearly. Sorry, David, you...

Specifically, Kal.

Yes. Thank you.

Well, I was going to say that David's going last. He's the best. But -- so logistics, right? I mean, it feels like it's a little bit of a catch-all segment within TFI International, kind of just lots of different businesses in there. So maybe a good place to start would just be for those who are unfamiliar with that, kind of what's a good 30-second primer around what is logistics as a business for you guys?

We'll go together. So I own the brokerage portion. Kal owns final mile.

I've got all the last mile divisions within the Logistics segment.

Got it.

And then -- but within there, there are some other unique opportunities that more specifically Kal had.

Yes, there's a lot of small brokerage type niche businesses that we have, predominantly mostly in Canada, drayage. We also look at small kind of container type, inspection type logistics businesses that are highly profitable that makes up in this space. But most of them are smaller and niche.

Got it. So maybe we can start out by just kind of addressing market trends, again, just given everything you've discussed today about the cycle turning and what impact that has on their respective businesses. Again, this is an asset-light business. But maybe start by running us through like where you're seeing the market today. Spot rates have come down dramatically since the beginning of the year, but they seem to have stabilized a little bit. Kind of how has '22 been so far relative to expectations? And kind of what's the setup in '23?

I think for me, from a brokerage standpoint, what -- so I'm a bit new to this segment of the business. And what I'm learning is, as the market softens in the U.S., a lot of the carriers run to the 3PLs or the brokerage guys for business because there's a lot of business at stake. So it -- you swing a pretty big hammer trying to make an opportunity with it. So there's a lot of suppliers that we do work with that have come to us with pricing opportunities, trying to drive more volume through their systems. And that just poses an opportunity for us because it gives us an ability to make a little bit better margin out of it. When a container is $20,000, it's hard to get a good margin on that because there's such sticker shock tied to it. Now as the price comes down, we're able to get a little bit better margin in itself. So from a brokerage standpoint, I think it's an opportunity for us, and the market's getting better.

I think from the last-mile perspective, I think we saw in '22, a lot of inflationary pressures. So I think a lot of that is in our run rate right now. And in terms of '23, I think the market rates are going to be similar. And so I think that we have -- we do have margin upside in '23 because, like I said, a lot of the costs are baked in. And so we are -- unless there's something else -- and maybe some regional adjustments that we have to do or some specific elements. But we feel pretty good about kind of the margin upside going into '23.

Got it. Rick, kind of just on the brokerage side, kind of where exactly do you play in the market? Kind of what is your niche? And kind of what are your ultimate ambitions of the business? Kind of -- like do you want to be kind of one of the larger players in the space? Or kind of like are you happy kind of like in your niches?

So it's a good question with a bit of a complicated response. So from a brokerage standpoint, we have TFWW in the U.S. We've got a couple of divisions that came over through UPS, through CFI into my group. So from a traditional brokerage play, we want to be the #1 in the world. Like it's not very capital intensive, so -- and it's a good cash generator. So let's get as much market share as we can. Where we're a bit unique is, from an LTL standpoint, where we have assets, we really don't want to say no to a customer. So almost all of my LTL divisions have a brokerage spin-off, where if there's something that doesn't fit my network, if it doesn't make sense to me, I don't say no to the customer. I take it, and I just broker it to somebody else. But I manage the relationship. So I own the relationship. I bill and I take care of it. But I'm able to resell it at a good margin.

Got it. And can you remind us again what is your spot versus contract exposure in the business? And kind of given what's happening in the cycle, there are some entities in the space who are like changing that going to '23. So what's your view there ultimately?

Yes, we -- it depends. In -- so if we talk about the LTL segment or the brokerage industry, we have blankets. We have customer-specific pricing. If you're talking from a truckload standpoint, it's much more spot because I don't want to get caught. I'm don't want to commit to you X for a price and then I can't buy it for X. I have no interest in even selling it. So we'll see that through some tenders. You'll potentially lose some business, but then they can't provide the service because we can't get the truck at that price point. So from a TL standpoint, we prefer to be much more spot. From an LTL standpoint, I actually prefer to have account-specific or customer-specific pricing because when Paul decides to put a price increase, so he has to renegotiate with me as opposed to just pass it through. So it gives me an ability to minimize the impact.

Got it. And just a -- first, follow-up on that. On the TL side, we are hearing from some entities that the market may be moving away from the spot market towards a contract market given the extreme volatility we've had in the cycle the last 5 years. Is there any truth to that? And kind of if that happens, kind of how do you chase that volume there?

Yes. I think there's truth that we're just not seeing it just yet and I think more so -- so if I look at TFWW, it's about 70% or 75% LTL, 20% truckload and 5% freight forwarding. So I'm not seeing as much because I'm not as deep into that market, but that gives me an opportunity. I do business with 5,000 customers a day, and I don't do a lot of their truckload work. And as we get better tools in place, we'll take over more of that truckload business.

There's that word again.

I know, for the record.

There you go. I think you guys have a quota or something. Kal, let's go to the last mile business. Obviously, kind of a tremendous growth driver for you guys and everyone in the industry for the last couple of years but maybe facing some of the toughest comps within the company as well. Kind of how do you see that evolving going into '23 and also maybe over the next 3 to 5 years?

Yes. I think it's important for me to highlight our last mile portfolio. B2B is about 45%. B2C e-comm is 20%. And we have a big medical health care space, around 25%, which can be both B2B and B2C. And then the rest is kind of like we do banks and financial institutions and others. So yes, in order for me to -- we touched on a lot of competitive landscapes based on these markets that we service because in the B2B, you have small local last mile guys. You have regional guys. You have national guys. So it's -- it hasn't changed. There's not a lot of tech companies come into the B2B. It's a lot of private fleet utilization, in-source, outsource. That's kind of a lot of the conversations we're having with our customers. In terms of B2C, e-comm is where we've seen tons of people come into that space, prior to the pandemic, during the pandemic, AMZL, tech base. So it's a bit crowded and you guys know because there's still a lot more funding happening into that B2C space. But what we find is there's a lot of carrier diversification happening from a lot of the network guys to the regional and that kind of serves our last mile play, both in Canada and the U.S. Bob touched on -- he's got the network. We've got the last mile. So we've got the best of both worlds in Canada. And in the U.S., kind of we're building the regional network on the B2C, so that really helps. In the medical space, a lot of those customers want to deal with dedicated medical platforms. They don't want to deal with a general courier company or general last mile. And so about a year or so ago, we made a decision to spin out our medical platform in the U.S. and now we have a dedicated team, a dedicated service execution platform because the patient gets different than delivering a package, e-comm package. So that's why we did that. So it's -- the B2B is not so much. B2C is evolving. Medical is more dedicated. So a lot of -- more to come on the B2C side.

Got it. Let's unpack it a little bit more because the last mile business, particularly big and bulky, is a very difficult business. Like many players like much larger than you guys and more specialized in the space have tried and failed here. So between you, me and the few thousand people on the line, what is your secret sauce here and kind of what makes you successful in this business?

Yes. So we do have -- in the U.S., we have one dedicated platform, TForce Premier. That's just big and bulky, does appliances and does appliance installations. But in terms of our secret sauce, I think really for us, it's all about density, right? And I think Bob touched on that as well. We -- when we look at the B2C, we have a certain ZIP code coverage. We have locations, and we don't deviate from that. And so customers do come to us and say, "Hey, can you help us here? Can you help us there?" But we bring them back. And we say, hey, this is what we're good at. This is our profitability.

Don't try to be everything to everybody.

Right. And so -- and then over time, as we kind of build that density, we do increase our ZIP code coverage. So it's really staying disciplined, and it's not like trying to serve every customer and everything that they're asking for. So we try to go back to our playbook and say this is what we're good at. This is what's the profitability is, and we're not going to deviate from that.

Got it. This is also a very fragmented industry. So is there -- given your M&A specialization, is there room for M&A here? Or just given the special -- the niche or the specialization you focus on, is there -- is that [indiscernible]?

Yes, there's absolutely a lot more opportunity on the M&A side in the last mile space, more in the U.S. than Canada because, again, Canada is limited. But we're looking at -- we feel pretty good about our medical space. And like I said, it's about 25% of our portfolio. And the medical space is going to continue that trending to in-home treatment. That's going to continue. So because of that, we feel pretty good. And there's some opportunities out there in the medical space that we're looking at. And the other thing is just regional tuck-ins. We've got 80-plus locations across North America. And for us to look in at those locations and see how we can continue to get dense, and that's where we're going to look at it. And we've got good coverage today. But once we look at those opportunities and how we can get better density is what we're playing for.

Got it. I think -- correct me if I'm wrong, I think there's also a same-day portion of the business here. Kind of -- so I'll ask you the same question I asked Bob. Kind of what do you think same day looks like kind of especially in last mile, big and bulky kind of over time?

Yes. I think the question for Bob was more about the retail space and the pickup from the store, but we do that today. So again, in our last mile B2C space, we can have either direct induction come from a customer. We pick up locally from the DCs or we pick up locally from the stores. And we're still bringing it back to our hub, and then we kind of route it that way. And so that's how our density play works. And so we're pretty flexible, and I think that's the key for us on the last mile. And I think the other piece that I think I wanted just to highlight there is the flexibility, we don't have a big network like Bob and some of these bigger players have. We don't go and have big hubs. We don't have hundreds square foot locations and big sortation. So we're looking at small locations. We have a lot of small infrastructure, small cost, and that's where it can allow us to be lean and mean. That really plays into our cost model and how we can service, be competitive for that space.

Got it. Last question on the business segments here. Rick, do you look at the forwarding side of the business? How -- I'm sure that's been a pretty significant driver of growth over the last couple of years, but it's probably seeing mean reversion going to '23. So what does the outlook look like for '23?

Yes. I think it's more of an opportunity in '23, especially as the supply chain settles down. And I think as a focus, as I mentioned earlier, TFWW, their core business is more LTL-based brokerage. So there's a world of opportunity in both truckload and the freight forwarding side. And we -- the customers, so we do freight forwardings for a major pharmaceutical pharmacy -- sorry, pharmacy in the U.S. And it's very sticky. It's very good for us. Next flight out, there's a lot of opportunity for us. So we want to try to grow that.

Got it. Maybe I'll ask you guys one more, and then I'll open up to the audience. Just from a technology perspective, kind of that's been a big theme here today and kind of many of your peers are using pretty powerful tech tools on the networking perspective. So maybe for each of you for each of your segments, kind of what technology tools are you using and kind of what traction can that generate over the next couple of years?

Yes. I think -- I'll go first?

You have 11 minutes and 35 seconds.

Okay. Great. Please don't take my 11 minutes. It'll be very [ upsetting ] for the audience.

Like the P&C, like Bob was saying, the last mile hasn't really been big on technology, right? So we're playing a bit of a catch-up on that. But we are spending a lot more time and therefore, on the technology to get it closer to where some of the market products are out there. But one of the things I can share today is, is that we've got a lot more visibility -- real-time visibility. That's what our customers are asking for. And so that's something that we are building and kind of improving the text messages or picture PODs or just kind of the Uber type kind of package over time. So that's something that's under development for us right now. And at some point in '23, we'll be rolling that out. So that's the other piece. But internally, route optimization, scanning, warehouse automation is -- those are ongoing, and that's going to continue because, again, we're pretty cost effective and we get -- the technology is going to continue to help us be competitive.

Got it. And Rick, kind of there's been a lot of talk about digitization in the brokerage and forwarding space. What are you guys doing on that front?

Yes. So we were not happy with our systems that we've had, and we purchased DLSW from another company who really wasn't investing in the technology. So over the course of the last year, we've made millions of dollars of investment into it. And there's not really one software solution. They probably use 20 different software packages, something different for freight forwarding, something different for LTL, something different for truckload and then tying them all together for speed and ease of use. That's really what you have to have for the customer. So our IT solution is kind of in a state of ever evolving at this point. We have a functional tool. We're just not happy with how good it is, and it's going to get better over the course of '23, is when we'll see better implementation of it.

Some of your peers have started giving us like productivity metrics, like a sales per headcount or something like that. Kind of have you thought of kind of giving us that to track how the technology kind of gains traction over time?

Yes, I think we can do that. I don't think we've looked at it. At least, I haven't personally. But our model is a bit different where we're agent-based. We have 135 agent stations. So what's the makeup of that agent station? And besides that, I have corporate reps. I have -- so I've got a bit of a milage of people inside. I don't think we've looked at what's our headcount relative to revenue, but I don't think that would be that hard to calculate for us. We've just not done it.

Got it. Yes?

Tom Wadewitz with UBS. So 2 questions for you. So one, I guess, TFI is primarily an asset-based company. I know you do a lot of asset light or a lot of good things to make it asset-light. But how do you think about M&A on the brokerage side? Is that something that it's a little different? You got to keep the people. And is that something that's an opportunity to make brokerage bigger? And then I guess the other one, this one for Kal, would be how do you think about the kind of IC and company driver mix over time? And is it a big issue, some of the pressures that show up in the U.S. in California and other states eventually?

I'll go first, Kal. Remember your question. So I think at TFWW, we really have huge opportunities. You know how big the market is. I don't think we dominate the market within -- so I think there's opportunity for more acquisitions, public or private, to buy their companies. I think there's opportunities for us to actually purchase agent stations. We have 135 agent stations where if we purchase the station, the sales number doesn't change, but we keep a greater portion of the commission, and we can run it through our back office. So we can run it more efficiently, and we'll get much better returns from it. I think we can also add more corporate reps. Our corporate reps are paid based on commission, very low salary and commission. So their payback is significant. So that's just a couple of ideas. I don't want to steal all Kal's time. I think there's tremendous opportunity for us in the brokerage, and it is a cash-generating machine. So I think we're very small in the U.S., and the opportunity is huge. Kal?

Just on the driver and the IC versus employee model. Obviously, AB5 is with us in California. So one of the things that we did to mitigate that risk, we purchased Unity Courier Express (sic) [ Unity Courier Service ] in Q1 this year. It's all employee model. So going forward, I think the mix is going to change for us. And I think we're going to leverage that platform. And California, Massachusetts is 2 areas that we're looking at and maybe more in the Northeast. But I think, over time -- like today, we have about 400 to 500 ICs in the U.S. and about 600 employee drivers. I expect that mix to change over time. And I think where you're going to probably have a Blue State versus Red State kind of demographics going on, I think that's where we're going to play in our model. But I think -- but the other thing with that, Tom, is that it's all good saying that we're going to move from IC to employee. Our customers have to kind of pay more and they have to -- they're asked for us for -- to have an employee model, but they -- we know that the cost margin or the cost infrastructure is more expensive under the employee model. And so we just can't flip the switch tomorrow. We've got to work that through that customer base. But I would expect that mix to change over time.

Anyone else? Here you go.

Yes, I would like to get more color about the -- obviously, the big discrepancy with the Canadian last mile and U.S. last mile. The U.S. last mile network was built with the acquisition, obviously, of BeavEx. You did also Donnelly. You did Dicom U.S. and you saw a big opportunity to tap that space. I would be -- I would love to have an update where you are in terms of margin improvement in the U.S. because, in Canada, it seems to be at a very good level. So...

Yes, Benoit, I think the -- definitely, both of the platforms are now double-digit operating earnings. And I think a few years back, obviously, the U.S. was lagging the Canadian margin. Today, the Canadian margins are still pretty strong. I think the opportunity for margin improvement is in the U.S., and I don't think it's the market rate itself because we've got a very highly competitive marketplace. But I think it's more growth. I think there's a lot more -- we have an infrastructure that we can -- capacity to push more growth in. And so that's where we'll probably look at the M&A and some of the other density players that we have organically where we're going to grow that. And I think it's the internal efficiencies, again, with technology and trying to try to reduce some of our cost base to try to help to get our margin in the U.S. closer to the Canadian margin. But there's been improvement, steady improvement over the last 3, 4 years, but I think there's more upside in the U.S. than Canada.

Kal, just to follow up on that. Rick, you used the word cash flow machine to describe this business earlier. What's the best metric to track the success of this business? Is it revenue growth? Is it EBIT dollar growth? Is it EBIT margin growth? Is it cash flow generation? Kind of what's the best metric?

For last mile, I could tell you it's PT margin. So we can measure every order that we do, both U.S. and Canada, by what's the cost of our driver per order. And so we know very quickly if that PT budget is not in the range that we measure. It's going to be upside down. So it doesn't matter about anything else. It doesn't matter about your labor cost. It doesn't matter about your infrastructure account. So that's really what we measure. And I think that's really the key for our profitability, both U.S. and Canada, is because we've got the tools to -- for our team. And it's the same -- we have 80-plus locations that have the same metrics, and they look at them every day. And that's kind of how we measure the business. So it's pretty simple. But we're able to -- it's not about having to look at the profitability by customer or by region or by location. We have it by the order level.

I think from a brokerage standpoint, we use similar measurements to the asset base. So we look at gross margin. We look at operating earnings, we look at EBITDA, but you have to be cognizant that there's no doubt, right? So there's no -- other than the investments we're making in technology, we have people with laptops and cell phones. We don't need -- in the divisions we've inherited from UPS, everybody's worked from home. We don't even need a building. So you just have to be cognizant of the cash flow generation. So we still hold them accountable to gross margin just like we do the asset-based guys. We still hold them accountable for what the bottom line is. You just understand that it can be a bit sweeter because it's not going to take -- we're not buying trucks, right? So we let Paul buy more trucks. We don't steal any of his cash. We just contribute to Paul so we can do better.

Got it.

[ More question ].

Great. So maybe one last one. Rick, there's been a lot of talk about like new entrants, new digital entrants in the brokerage and forwarding space, everyone from like Uber and Amazon, and you referenced that as well. Kind of do you run into those guys? Do you think they can be disruptive over time? And kind of where do you think the market kind of set up or competitive environment looks like in 5 years?

I would suggest that there's 2 impediments. One is they have to have the customer relationships, and they don't have those yet. And you have to have the carrier relationship. So until they have both of those overcome, you can have all the software you want in the world. You don't have somebody to deliver your freight and you don't have somebody to give it to you. So that's the magic sauce that I don't think they've mastered yet.

Kal, anything in...

Yes. I think a lot of these tech players are coming to the last mile space, but they don't have drivers, right? And so I think they can have the best technology out there, but you have to have the network. You have to have the density, and you have to have the coverage. And I think -- and for us right now, I think we feel pretty good about our solution in terms of our cost structure and kind of speed to delivery in the last mile space. So I think that's -- listen, we're going to see more and more the crowded space. But I think we're going to stick to our principles and our fundamentals. And I think that allow us to be relevant in this space.

Got it. I also have a follow-up on the AB5 question. Kind of, a, there's been some talk of making it a national or a federal rule. Kind of do you think that happens? And b, you said that ratio of driver versus IC changes over time. Again, do you think this like fundamentally transforms the industry? Kind of what does this do to the future of last mile?

It -- this is not going away, right? It's not going away. And I think there's a lot of people in denial. And so we've kind of started to change our model even before AB5 came into play. But now the reason we did this acquisition was to help us kind of get our infrastructure on a platform that we now can take -- move out to other parts of the country or other parts of the states. So the issue we're going to have is a competitive landscape. And that's what we're dealing with right now because even if we go and get too aggressive on making that shift, we may find that a lot of the competitors don't do that, and then we could be on the -- from a revenue perspective, it could be a gap. So that's why we're taking it cautiously in terms of which locations are a lot more sensitive to this. And so -- and obviously, California is one. Massachusetts is another one. So we're looking at those locations now. And then, eventually, it's going to go into the other parts of the country. So -- but we're having a lot of dialogue with our customers right now in terms of the fact that they want that model, but they got to pay more for it.

Got it. We don't want to make David late. So let's wrap it up there. Gentlemen, thank you for thoughts.

Okay. Thank you.

Okay. So the impact of everything that we've been talking about today is really evident in the numbers, right? And you can see our revenue growth over the last several years is 33% annually; EBITDA, similar; adjusted EPS, even higher at 43% annual growth; and net cash from ops is at 25%, but that's really because it's a little bit lower only because of the major working capital investment we've made in funding the fuel surcharge this year. Looking at each of these segments. We're showing U.S. LTL quarterly because we've only owned it for 6 quarters. I think it's important to note that, in the 6 quarters we've owned it, the cumulative free cash flow we've generated just from this segment exceeds half the purchase price. And that's not even counting the $83 million we got from the sale of the Rialto terminal in California, which, by the way, generated a large gain from the sale, which is why Q2 '22 op income is $141 million. ROIC is 25% in this segment after just 6 quarters. And we're really just getting started here. To give you a sense for where we're going in the U.S. LTL, we can look at the Canadian LTL, which we've owned for longer as Chris and Rick were mentioning. We spent sort of the mid part of the last decade of accumulating LTL assets in 2014 through to kind of 2018. And in 2019, you can see sort of what we've done as we've rationalized and optimized, right? And this is the potential. And so look at the operating income. It's up 23% annually over the last several years and EBITDA and ROIC, up substantially. Specialized truckload, very good source of growth for us, both organic and M&A. You can see revenue, 10% CAGR -- these would be before fuel numbers, 10% CAGR driven by M&A and organic and operating income up a lot more than that. And this is where you see everything the guys are talking about as it relates to rationalization, as it relates to operating improvements. That's why profits grow faster than revenues at TFI. And so we're -- we've been putting up 30% annual growth in operating income at specialized. Similar with EBITDA and ROIC, up sharply. In the Canadian truckload, we have similar dynamics to what we have in the specialized, good top line growth, again, 13% M&A and organic operating income and cash flows up significantly, 27% for the op income. P&C. So this is a very good example of what we can do when we really polish the diamond and what the -- the true potential of all of the operating improvements that we've talked about. This is all organic. We haven't done a deal in many, many years in P&C. Top line growth, 3.5%. And the CAGR on annual operating income growth, 20%. And it's not a coincidence that this is our top ROIC segment, north of 30% ROIC. Why is that? It's because we haven't done a deal here for a long time. Typically, when we do a deal, we're buying companies that perform less well than our core operations. So here, we've had a chance to work on this one for a long time and drive the returns north of 30% and the cash flows and, of course, the earnings have followed. Logistics, very good growth driver here, again, organic and M&A. Top line, 36%. Operating income, similar, a little higher at 38%. A couple of things to call out on these numbers. On the op income in '21, we had a $12 million bargain purchase gain, which increased the operating income. That was nonoperating in nature. And similarly, in the TTM period, we have a $12 million legal charge. So really, there's a $24 million difference between those 2, and if you made those adjustments, you would see a nice steady progression in earnings in that segment. And similarly, the ROIC, the only reason it's coming down in the more recent period is that the total capital invested in the prior year period included periods where we didn't own DLS. So we didn't have the full burden of the capital, whereas now we do. Generally speaking, though, once we kind of adjust and understand those, very strong driver of growth, very strong driver of free cash flows. So now on to our ROICs. So these are, first of all, real ROICs. And what we mean by that is true after-tax EBIT divided by all capital invested including the intangibles and including goodwill. So if we overpay for an acquisition, then we have to live with it, and it's going to show up in these numbers at all times. And so what you can see is that all of our divisions now return well in excess of our cost of capital. And that's how you create value, right, is by doing that. And over time, investing large amounts of capital in other projects and in other companies that will exceed our cost of capital significantly. There was one segment that did not earn its cost of capital and now it's out. It's out of the family. So as a result, we've got a very, very high-quality portfolio today of very, very strong businesses. So how do we do that? What are the key drivers? There's really 3 fundamental pillars of driving this very, very consistent success. And we're showing you numbers, they go back 3 or 4 years, but you can go back and we have it published on our website. You can look for 20 years. It's the same story for 20 years. The first is continuing operating improvements. And how do we do that? We do it through data and we do it through people. The way we do it through data is that we benchmark everything about our divisions, every line item of cost, every KPI, everything that's going on with rates, pricing, and we bucket the divisions. And so the underperforming divisions, we know exactly why they're underperforming, specifically what items, and so we can help them. And then on the people side, the top performing managers, the top performing teams, sometimes they're called upon to help the bottom performers to fix those specific items. And sometimes they'll get involved. And so there's this continuous improvement, right? The second is the business focus. So there's businesses that we want to be in, and there's businesses that we don't want to be in. The businesses we want to be in are the ones where we can gain sustainable competitive advantages, businesses where there are real barriers to entry and businesses where there are growing end markets. And I think that applies really well -- all of those criteria apply really well to all of the businesses in the portfolio today. And the result of that is that we also have a very diversified business, much more diverse, I think, than most in our industry by end market, by mode of transportation, by country and even by currency. And then, of course, there's capital deployment. Capital deployment is critical for us. So the big deals, they get a lot of attention. But first, when we talk about M&A, let's talk about the tuck-ins. Okay? We deployed $250 million to $350 million of capital annually in tuck-in acquisitions, and we generate returns after tax on those acquisitions of 15% to 25% over time. That's a combination of the purchase price, plus the operating improvements that we make. And these are not aspirational numbers at all because, frankly, most of our divisions are operating within or above that range of ROIC anyway. So we've demonstrated that we can do it. So if you do the math and you say, okay, over a 3-year period, we're going to invest $1 billion in tuck-ins and we're going to generate, take the midpoint, $200 million of operating income -- not of operating income, of net income, $200 million of net income after tax, and there's no interest expense because we're funding these off of cash flow. So you've got $200 million every 3 years of net income being added to the business just from tuck-ins. That's about $2.50 a share, so $2.50 a share just being added every 3 years based on this capital deployment strategy of tuck-ins only. And then you layer on top of that something big every 2 to 3 years with the same return criteria. In addition to that, of course, we have stock repurchase. And the way we think about stock repurchase versus M&A is just risk-adjusted return, right? Where do we see the best risk-adjusted return? We know that when we buy the stock, we make our cost of capital, fine. That's a baseline. We do it with very limited risk because we know exactly what we're buying. So of course, M&A needs to exceed more -- needs to return more than that on an expected basis along the lines of the criteria that I just went through. We also deploy capital on organic growth in our internal projects. And the way we think about those is simply that they need to exceed our cost of capital. Projects that exceed our cost of capital get funded. Those that don't, they don't. Dividends. This is a commitment of ours. Dividends are very important. We have a very strong, long track record of raising our dividend typically. The policy is to pay out 15% to 30% of free cash flow. Today, we're at the very, very low end of that range. And so the -- and that's despite a 30% increase that we just announced with our earnings. Target leverage is around 1.5. Today, we're at 1. In the context of a large deal, we could tick up to 2.5 or so with the intention, of course, of just delevering down to our target of 1.5 very quickly thereafter. I'd like to conclude with a few thoughts on long-term outlook. So these are long-term average margin targets. So these are 10-year average margin targets that take into account multiple freight cycles. So the way to think about these numbers is, 10 years from now, when we look back over the 10 years that will occur in the future -- in the next 10 years, what will the average margin be for each of these segments. So for P&C, it's an 80 OR; Canadian LTL, 80; U.S. LTL 80; Canadian truckload, 80 to 85; specialized truckload 80 to 85; and logistics 88 to 90. And we're very conservatively forecasting, again, over that 10-year period, future 10-year period, organic revenue growth in line with GDP. So what can we do with these numbers? The way to get a view for what the real potential is of TFI is you can take our 2022 revenues, and you could build a 5-year or even a 10-year model, right, and grow those revenues by your view of GDP and apply these margins. Now the very, very important piece to not forget, and many market participants do forget, is the capital deployment every year, right? Every year, what's the cash flow that we're going to generate under these assumptions in that year? And then what are we going to do with it? Well, you can model some M&A based on the criteria that we just put out there, 20% after-tax returns, and you can model buybacks. You can model some combination of it, too. I think if you do that and you see where you end up with EPS a few years down the road, you'll get a real vision of where we're heading and where we think we can -- where we think the real earnings power of this business is. So with that, I'd like to stop and open up the Q&A and ask Mr. Bedard to come and lead that.

Well, I'm really happy to have all these people here today and the ones also on the webcast. And it's really nice for you guys to have a chance to really have an understanding of how deep this team is. Now David talked also about our future. I mean I don't know what the future is going to look like. But a lot of guys say that you've got to look at the past. Maybe that could be a good guidance for the future. And like I said in the opening, we really started this company 25 years ago with not much. And our focus has always been delivering results for our shareholders. So this company is focused on the shareholder, okay? And with shareholders' money, we could service customers, right? So we're not the upside-down model is, oh, serve this customer and hope for the best for the shareholders. That's never been in our model. So this is why, like all of our guys said, we try to do more with less. That's a religion, a density, okay, which is a term that's been used by all of our players. This is the big difference in transportation because if you look at our LTL, our focus is, guys, try to pick a freight closer to your terminal, like guys have said, try to pick up more freight per stop because the stop, if you pick up 1 shipment or if you pick up 3, the cost of that stop is the same. Also, the benefit that you get from high density is on fuel. So let's say, your fuel surcharge is always based on dollars revenue, right? But if you do a stop, costs you more because fuel is high, but if you get more dollars of revenue on that stop because you get more shipment, then you get more fuel surcharge because it's all based on revenue. So that's the equation that we do at TFI. So by getting more freight per stop, getting more freight around your service center, this is a huge benefit in a high-fuel environment, okay, like we're probably going to be in for at least a year or 2. So this philosophy of trying to do more with less is really the help, okay, for generating our free cash flow. That is huge. When you believe that TFI's free cash flow this year, what'd you say, we're going to be at $900 million, minimum $900 million, I mean this is unbelievable. I mean -- so everybody is focused on doing more with less. So like Steve was talking about. When we look at the CapEx that we have to do next year, price of a trailer is incredibly high. Same with a truck. So can we reduce our CapEx a little bit and spend more on M&A and get the equipment because, as we always find out when we buy a company, these guys don't manage the asset? They love trucks. So they always have too many. They love trailers. They always have too many. And as we get in there and we say, hey, Steve, I mean, that's part of your CapEx, so let's buy a company, we also solve an issue of drivers, right? Because you buy a company. There's drivers. There's trucks. There's also drivers. So after a few months of cleaning up the business that doesn't fit, then we end up with too many drivers or too many trucks. And then we can recycle these guys elsewhere if it makes sense, right? So I mean this is TFI. I think the proof is in the pudding. If you look at our last 25 years, we'll just keep doing what we've been doing for the last 25, is work to get a return to our shareholders. That's always been our mission. So I don't know if any of you guys have any question. Make it easy for me, right?

It's Walter Spracklin, RBC. So looking at the aspirational targets that you've given over a 10-year period, you're already there on some of them. You're performing very well. There is one in particular, obviously, U.S. LTL where you want to get there. Are you using the 10-year format to say, hey, we average that. It's a 5 year that we could get to 80 on a run rate basis? I know you've talked a little bit about quicker than that. So I'm just curious what -- how quickly could you get to those average levels, particularly in U.S. LTL?

Walter, I'm still confident that we could do the 80 to 85 because I said 80 to 85, right, within the next 2 to 3 years. But I'm very confident, okay, with Paul's leadership and the team and the support that he gets from us, okay, that we'll get an 80 OR. There's no reason, okay, that -- 85 OR in the U.S. today is just the norm. I mean it's not an exception. It's just the norm, right? But I think us with our recipe, okay, with our different way of doing things, by focusing on doing more with less, I think we'll get to an 80 OR on average with our U.S. LTL. Now within the next few years, we'll get to a 80, maybe 85, 80 to 85, but for sure, the goal is to run at 80 OR operation in the U.S. down the road.

Ravi Shanker, Morgan Stanley. Two questions for you. One is we've heard a lot today about what makes -- what has made TFI great over the last decade, but we haven't heard anything transformationally different for the next 10 years. Is it fair to say that kind of despite all of the kind of supply chain and geopolitical chaos and everything else that you guys believe that the same formula that drove your success over the last 10 years will also drive your success over the next 10 years? And the second question is, obviously, you've had a very good pace of M&A. But as you get bigger, you need to make more and more transformational acquisitions to drive that incremental growth. So do you think that pace of M&A will pick up at some point as well?

Thank you, Ravi. But I think that your first question is that we're going to keep doing what we've been very successful at, is it's just going to be more of the same. Okay? We have a team here that is very, very solid. And what we're trying to do also is to beef up our bench strength, right? And sometimes through acquisition, okay, like the UPS Freight, I mean this is going to beef up our team, right? So this is, to us, really the goal. What's your second question?

Pace of M&A as you get bigger.

Yes. Like David explained, I mean, our focus is we have to invest between $200 million to $300 million to $400 million every year. There's so much potential, I mean, on the small tuck-ins that we do in Canada. I mean I think we've done 4 or 5 in Q3, and we're going to do 2 or 3 in Q4. And it's so good for our shareholder. I mean -- so we're going to keep doing that. And our guys also are getting excited. I mean I got Mr. Brookshaw now that's getting used to doing more and more of that, right? So he says he's got a little bit of white hair, but he's not like me. Me, I've got white but lost. So I mean the guys are really into it. We know what to do. Our reputation in Canada is second to none. Everybody wants to be part of the TFI team in Canada, not so much in the U.S. because we're new. But I think that this is going to change. I mean we have a great recipe, okay, of success, and we'll keep doing what we're doing. I mean -- yes?

So Tom Wadewitz, UBS. I wanted to -- it's kind of related, I guess, but what about big deals? It seems like that so much value created and more to come with UPS LTL business but probably harder to find the big deals. Where do you -- what areas do you think might be more promising? And do you consider -- I mean, I think all of us in the room can relate to the complexity of the earnings model, but you manage it quite well. And I'm wondering, do you consider looking at areas outside of the kind of 4, 5, 6 things you do today? So some thoughts about big deals, how you think about it, which areas.

Thank you. Thank you, Tom. So a big deal, it's not easy to do. So first, our focus has always been can we find an orphan somewhere, okay, because I like orphan because nobody care about an orphan, right? So if you think about UPS Freight, it was an orphan of UPS because UPS is a fantastic company, but for them, LTL was, we don't really care about that. When I bought DHL Canada from DHL in Germany, it took me 2 years to convince those guys to get rid of that. It was an orphan, right? It's difficult to do. So we don't have much competition on an orphan deal. Nobody is stupid enough to try to buy an orphan. But that's our focus, us. That's #1. Number two is every time you try to do a deal of size, the seller's first reaction is always no. I don't want to sell, no, no, no, because our reputation is so that, for sure, we buy something. Change will happen, right? So you got to be working, and you can't be like a sales guy that the customer says no and he runs and doesn't do anything for 2 years. So you got to keep working at it, right? So on a larger deal, most of the time, I get the no. So we just have to keep working on it. The other thing too is that -- you got to do a deal that makes sense for your shareholders, not just about size. And every deal that we do, okay, within TFI, it's very important to understand that we need an owner. So as an example, we're buying a company right now probably in Q1 next year. Well, who's going to own it? Well, Chris is going to own it. Okay, so fine. We're buying another company probably in the U.S. so Steve is going to own it. So there's no deal within TFI, okay, that there's no owner. I was the lucky to own UPS Freight with Paul, right? So it's like -- that's why he says he's always on my back, right, trying to do this, trying to do that, change this, change that. Well, it's because I'm the owner on that one, Paul. So that's always been our approach. But the focus is not to be big. It's to do more with less. That's the focus. And by doing that, I mean, this is what you see at TFI. And I really like what David has shown you guys, okay, about -- think about this $200 million to $300 million invested. Okay. Look at our track record. Look how much value it can create. And then, okay, adapt that to your model, okay, down the road. And guys, keep following us. You'll see.

Five more in queue. Here we go.

Bascome Majors, Susquehanna. Can you talk a little bit about the depth of the bench and the capital allocation effort between you and David and other people that are involved with you in that? How many people are involved? How does that process work? And very long term down the road when you're presumably no longer involved with management, how do you expect that function to evolve?

Well, yes, that's a very good question. I got Board members asking me that all the time. What's the plan when you're gone, right? But the plan is simple is that, like I said, is we're going to keep doing more of the same, right? So on the M&A side, okay, I'm not the only one now that's coming up with deals because a lot of our deals are coming up from some of these guys. Like it could be from Steve or it could be from Kal or et cetera, et cetera. So I mean this machine, this TFI machine, in my mind, will keep growing. Okay? And don't forget, we have a commitment, like David was saying, of giving back at least 15% to 20% of our free cash flow to our shareholders. Now that comes from the time that we were an income trust. So we were a Canadian income trust from 2003 to 2008, where we had to commit to give back to our unitholders at the time, a monthly cash distribution. So this brought us a lot of discipline within our company, right? So this kind of philosophy is in our blood. It's really us, right? And I don't know, maybe 3, 5 years, Alain is gone. Okay. But we will have a leader that's going to probably be a little bit different than me, but I think that this leader will come from inside TFI. It's not -- we're not going to find someone outside and bring this guy in. It's going to come from the inside. So that's why, to me, it was important today to show how strong we are.

Alain, it's Ariel Rosa from Credit Suisse. So I had 2 questions. One is I'm curious to hear your take just kind of on the broader North American transportation landscape. And are there any areas that you're not currently in that you see as particularly attractive? Or do you think -- as we think about what the business looks like 5 or 10 years from now, are the segments of TFI pretty similar to what they are today? And then secondly, I wanted to ask in terms of the 10-year forecast. There were a couple of areas where it seems like you're currently at those margin targets, and specifically, I'm thinking Canadian LTL. And I'm wondering, should we read something into that? The fact that you put up an 80 OR target on a 10-year basis for Canadian LTL when you're already well above that, is that -- is that indicating something about an expectation for the market? Or are we just kind of...

Well, what we've shown there as a 10-year, I mean, for sure, if you look at our Canadian LTL, like you said, I mean -- or our P&C, we're doing better than that. But what we're saying, what is normal, what is conservative because the philosophy at TFI is always under promise and over deliver, right? So we're not going to paint a rosy situation and say that, oh, we're at 72 OR right now. We can maintain that for the next 10 years. So this is why we're coming up with something that's reasonable, attainable and doable, right? So that's -- that is what TFI is all about. And next?

Right here.

What's the other part of your question again?

On a broader landscape [indiscernible].

Well, there's one business that I really like, is the waste. But I had to sell it 6 years ago because I couldn't grow it. I could not grow it because the valuation of TFI at the time, I mean, it was so stupid that I had to sell it to my buddy, Patrick, at GFL. Okay. But this is not going to come back. Okay? It's impossible for us to be back into waste. But to me, it was a fantastic business, but we couldn't do anything in terms of M&A because I had to buy something at 8, 9, and I was trading at 5, 6, 7. But besides that, between you and me, for sure, we've looked a few years ago, the custom brokerage, but we had to walk away from the deal because we believe that these guys' technology were so bad, as a matter of fact, they got hacked a few times. So I mean, for now, I would say that we're going to be really focused on what we do best, which is what we're doing now. But for sure, if we have an opportunity, when I bought my truck in 2000 and something, a lot of people in Canada were laughing at me. They said, well, what is this guy doing. He knows nothing about waste, right? So now I know a lot more about waste. Why? Because Kal used to be the CFO of Progressive Waste, right? So the 2 of us, maybe now we could do something on that. But no, just to say that we're going to keep doing what we know best. I had an opportunity based on Walter's recommendation a long time ago, and I said to Walter I can't do this deal. I know nothing about the business, saying I was worried that the 2 guys running the show with too much money would just run away. Turned out that I should have done the deal, but you can't go back in time. So we're always open for something new, but really our focus is about what we do best.

Alain, it's Ken Hoexter from BofA. Two questions, one, your thought on the economic backdrop now and into early 2023. Given you cover so many different areas, we heard about industrial, consumer side and obviously, a lot of dynamics changing in inflation that was talked about. And then secondly, a postmortem on CFI. So you talked about, a lot of time, the spin. But what do you see now in going into the acquisition? So as you make these multiple acquisitions going forward, did you learn, was the wrong thing, if there was anything you could have foreseen ahead of it?

Okay. So in terms of the general economy, I mean, our feeling is that because of interest rate that has been moved up because of the way the consumer fees, et cetera, et cetera, we may be in for a small kind of slow growth or no growth or maybe a little bit of a recession in '23. But I mean we're ready for that. I mean we're good with that. Now in terms of the CFI transaction, for me, that was the best way to get to the U.S. Okay? Because at the time, like I was saying, when I was talking to UPS, they said, no all the time, right? So Transport America is really the first one we bought, and then we bought CFI. So that was the first way for us to get access to the U.S. market to create some size because my goal has always been to be in the U.S. equity market because the valuation that we got in Canada at the time was stupid in my mind. And I said the valuation in the U.S. is completely different. A lot of guys on Baystreet were laughing at me saying, oh, no, this is not going to change anything, blah, blah, blah, but that was the goal. So after UPS said, "Alain, we'll do a trade. We'll do a deal with you," then my thinking is simple, is that I don't need truckload in the U.S. because my return on invested capital does not even cover my cost of capital, right? So I mean we had a nice talk with a guy that will do a better job than me with CFI, which is Heartland. Those guys are fantastic. So it's a nice home for our team. It's a nice home for our people. And Mike over there at Heartland, he's got a fantastic team, and he's going to do better than me. And now I've got more capital that I can redeploy, okay, with return on invested capital better than my 6 or 7 or 8 that I was getting at CFI.

Four more to go.

James Monigan from Wells. Just wanted to follow up on the 2- to 3-year outlook that you had for LTL in the U.S. How should we think about revenue across that point -- to that point in time? Do you have to sort of take -- make the business smaller to actually hit that sort of 80 OR target, like do less with even less? And then also, as a second question, just buybacks, like absent M&A, should we be thinking about like a certain percentage of free cash flow that can go to buybacks or something along those lines as sort of bracketed a bit?

Yes. Well, since we bought UPS Freight, it's a much smaller company than it was, right? So when we bought it, we were running about 30,000, 32,000 shipments a day and now we're less than 30,000 shipments a day. I mean we're down -- as you saw, we're down volume-wise, I think, Paul, 17%. Am I right, year-over-year, Q3-over-Q3? Now like Paul was saying, I think now we have some kind of stability. Okay? We still have some freight that doesn't fit more rural, okay? Because I don't like to deliver shipment 75 miles away from my service station. It's too much money. It doesn't make sense. So we still have a little bit of that. So I see some kind of stability right now. And the big focus of Paul and his team is that we're moving out of UPS Oracle system Jan. 1. This is big for us. Like Paul was explaining the finance, the general ledger, I mean, this is a huge cost that we're paying UPS. Now we're going to be moving that on the TFI Oracle. It will give us way more visibility on the numbers, so we could manage the business better. So to me, I think that to get to an 85 OR within a few years, I think it's got nothing to do with the top line. It's got a lot to do with the cost and better efficiency. We believe that our fleet is costing us a fortune because, I mean, we have old trucks, and we have too many of these trucks, et cetera, et cetera. So to me, top line, no, it's not really the issue for us in '23. But we'll start growing again at one point. Okay? No problem. We are improving the service like Paul was saying. We're investing in education of our people, which is very important. We're also giving them better system, right? Like Paul was saying about the line haul, line haul is complex. Line haul for us in Canada is easy because you -- out of Toronto, you run to Montreal to the maritime and then you run west, okay, to Vancouver, Calgary, Edmonton, et cetera, et cetera. It's easy. The line haul in Canada is very easy. But the line haul in the U.S. is way more complex, okay? Because we have more than 2 hubs or 3 hubs. I mean how many hubs we have? 19, so it's very complex. And the tools that we have are not really up to par, right? So we're changing that. So to me, to make a long situation, short answer, I'm trying, is we have the recipe. We know what to do. It's just it's going to take some time. Top line, not really for us the way of success. We'll do whatever we can within the next 2, 3 years, but really, it's a cost thing. It is us. We have to do it ourselves.

Three more. Scott?

It's Scott Group from Wolfe. Maybe one follow-up for David and then one for you, Alain. So David, you talked about, what, $250 million, $300 million of capital deployed for tuck-ins per year. When you think about the next 3 years or so, what's the total amount of capital you think you can deploy, including larger deals and buybacks if you add it all up? And then, Alain, sounds like you've had with the team lots of the budget meetings already. When you add all up, what do you think is the -- is there an ability to maintain grow earnings next year? Or is that just too tough given the macro?

Yes. So total capital, you take it in pieces. So the tuck-ins will be $1 billion over 3 years, right? Then if you want to think about total capital available, while it's all of our free cash flow plus the additional headroom on the leverage. So today, just to get the leverage up that 0.5 turn to our target right at $1.5 billion of EBITDA, right, we're talking about there's $750 million of capital that can be deployed plus the free cash flow of the year, which is $900 million this year, right? That would be if we wanted to deploy everything and get to the $1.5 billion. And then when we think about the context of a large deal and the willingness to go up to around $2.5 billion plus the free cash flow generated over 3 years, that's essentially over 3 years. Putting all that together, we could deploy up to $5 billion cumulatively over that 3 years without any issue. And at the end of that, quickly, we delever down to our target of $1.5 billion.

Return targets different than [ one ]?

No, return targets are the same. And the proof of that is UPS Freight, right? We're only halfway to our target at 90 OR. We're already at 25% ROIC, which is above the midpoint of that range that we gave for the tuck-in. So no, the bar is the same for large or for small.

So about '23, Scott, I can't talk about '23 because I didn't see Paul's budget yet. And so that's my excuse. Okay? But what I could say is that we'll get back to you guys on our guidance, okay, early in the year. Now we've always tried to do better every year. Now maybe -- like you said, maybe the macro is going to be a little bit of a handicap for us. I don't know. So we'll have to see. But as soon as we can, we'll give you our guidance for '23. Okay?

Jordan at Goldman Sachs. The 10-year average is very helpful for the 6 segments. Wondering, though, can you maybe talk to the variability with -- of those 6? Like in other words, P&C would that have more variability, high to low, than then Canadian LTL? Can you maybe talk about the variability over those time periods?

I think that if you look at the variability, okay, the one that's got the most variability is truckload in my mind. Now specialty truckload, it's got less variability than just a regular van that we have in Canada, right? So I would say that if you look at our P&C, our Canadian LTL and our U.S. LTL, it's pretty sticky. I don't see a lot of movement once everything is said and done. Okay? Truckload on the Canadian side could be a little bit of a different story. Okay? You could see more -- a little bit more variability there. Specialty truckload, like Steve really explained very well of what we do, we shouldn't see too much of a variability. Now for sure, a lot of our specialty truckload is tied up to commodity pricing. So let's say, aluminum is on fire like it is now, for sure, we're busy like crazy hauling aluminum out of Quebec or Ontario, well, mostly Quebec into the U.S., right, for the cars and all that. So that's why truckload could probably be -- and not so much logistics because like the guys on the logistics side we're explaining, when there's a little bit of softness in the market, a lot of these transportation company starts to go desperate, and they come to us, and they lower their price; or within our own operation of truckload or LTL, we also have our own internal logistics operation where we do better, okay, in tough times because we try to keep the dollars with the customer about the same, but we get a better benefit with the transportation company that is now desperate because times are tough.

Brian Ossenbeck with JPMorgan. So I just wanted to ask about ground with freight, GFP, ground freight pricing. And it's one you've talked about being a diamond in the rough in the past. We didn't hear about it today. So maybe that's something [indiscernible]

Paul said a few words about it, but he was shy. He didn't want to say that we're growing that more than 20% a year, top line. I mean, Paul, congratulations. This is a fantastic job. I mean -- and it's really a diamond. Why? Because I believe that we could -- I haven't seen the plan of '23, but that was '22. But I believe that this is such a fantastic product. Okay? And we're tied up with UPS on that, that -- and it's also an asset-light kind of an operation within our LTL. So really, it's still a diamond. Okay. We're working on polishing the diamond, but it's really something that separates us from the rest of the LTL industry in the U.S. because nobody has that product, right? So I mean what we're trying to do with UPS is to bring the same product to Canada. Well, so far, Rick has not been too successful, but he's working on it. But GFP, it's a diamond. It's a fantastic business that we have with them. And thanks to Paul and his team, I mean, they came to UPS with this kind of philosophy that why would we handle a small ship than us, okay? It's conveyable. Don't want to touch it. Give it to UPS. They come. They pick it up. They deliver it; and us, we don't do anything. We don't even bill the customer. They do it.

So it sounds like more growth for GFP and Paul's budget for next year?

We'll see. I don't know.

We'll find out later. One other quick follow-up just on pricing in general and how it's done throughout the industry. We've seen the biggest carrier talk about more dimensional pricing. Do you think that actually makes a difference in terms of the go forward? And maybe you can give us an update in terms of where TForce Freight stands with their own dimensional-based pricing initiatives.

You're talking LTL now, Brian?

That's right.

Okay. Well, I think that you want to talk about the dim. Is that what you're talking about? The dimensional -- the tube and weigh and this and that?

Yes.

So as soon as we bought UPS, I mean, they already had a few dim, those tunnels that you go through in the plan. Well, we've grown that from -- how many are we going with now, Paul?

We'll be at 201 at the end of the year.

Yes. We'll be at 201, okay, tunnels on our dock, okay, which is really fantastic because we don't have to touch. I mean the guy, as you know, just goes through the tunnel, blah, blah, blah and then sends the information. Then we could bill the customer appropriately. As a matter of fact, we don't have this technology in Canada today. We'll be the first to install that in Toronto. When are we doing that there, Rick? Now?

Before the end of the year.

Before the end of the year. So we'll be the first one to introduce. We're just trying to have Canada measure thing there, weights and measure Canada. Those guys are complicated. So to approve the system, once it's approved, then it's going to be up and running because right now in Canada, we have fixed. Okay? So the guy has to come, blah, blah, blah, and so it's old technology. So we're moving that, okay, based on the experience we have with TForce here in the U.S. into Canada as well.

That's it.

That's it. Well, I would like to thank everyone. Okay? Thank you. Thank you to our team.