Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the TFI International's Third Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Callers will be limited to one question and a follow-up in order to get to as many callers as possible. Further instructions to for entering the queue will be provided at that time. Before we turn the call over to management, please be advised that this conference call will contain several statements that are forward-looking in nature and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. Also as a reminder, TFI changed its presentation currency at year-end 2020 and all dollar amounts are now in U.S. dollars. Lastly, I would like to remind everyone that this conference call is being recorded today, Friday, October 29, 2021. I will now turn the call over to Alain Bedard, Chairman, President and Chief Executive Officer of TFI International. Please, go ahead, sir.

Thank you for the introduction operator and thank you everyone for joining us this morning. Yesterday after the market closed, we released our third quarter 2021 results. TFI International further built on our solid performance all year by completing another strong quarter. Each of our businesses, segments performed well and many are now surpassing the pre-pandemic levels of revenue and profitability. We continue to successfully integrate UPS right now under the TFI umbrella as TForce Freight and we're heading into year-end in the strongest position in our company's history. The past two years have been like none other, but TFI International rose to the challenges. Those of you who have followed our company for many years know that this means, we simply maintain our focus where it's always been. We get it right on the fundamental details of our business. We look to maximize efficiencies and we seek strategic acquisition opportunities. Ultimately, we're looking to drive strong returns on invested capital, optimize our free cash flow and grow our earnings per share in order to create long-term shareholder value and then we return excess capital to shareholders whenever possible. This is our focus regardless of operating conditions. So even now with North America facing supply chain disruptions, labor shortages and of course ongoing pandemic-related disruption, we at TFI International feel very confident in our ability to navigate the road ahead. On a more granular basis, right now, we remain focused on details such as optimal pricing, driver retention and what we call freight and network that fits. Another important current focus of ours is on the integration and fine-tuning of TForce Freight following the largest and most strategic acquisition in our company's history. While already having a positive impact on our positioning, as we've improved quality of freight, we still…

[Operator Instructions] Our first question will come from the line of Jordan Alliger with Goldman Sachs. Please go ahead with your question.

Yes, hi. Curious on the LTL side. I know you've been discussing yield initiatives and price initiatives. Can you talk about, I don't know in terms of proportion of the business perhaps that you still have left to go in terms of reorienting the pricing or the freight mix? Thanks.

Very good question, Jordan. Good morning. So I would say that, if you look at the freight that we're holding right now at TForce Freight, we're pleased to say that probably 50% to 60% of what we do today fits the network and also fit the freight profile that we want at TForce Freight. So the team there has done a fantastic job. I would say, over the last nine to 12 months because this process has already started when we bought UPS Freight, right? So the guys have done a fantastic job, but there's still more to come, more to come in terms of making sure that what we're hauling okay is always freight that makes money for the company and fits the network. And there's also a lot of discussion right now. We've informed our people that we'll be shutting down a few terminals early in December okay because there is a very low volume and too much fixed cost, right? So it's an ongoing process and working on the freight that fits will take time. As we are coming out with Q3 with a 91 OR, I mean it's acceptable because we've owned this company only for a few months. But this is not the goal to be a 91 OR company, right? So we still have a lot of work to do on cost. But on the freight fixing something that makes sense in terms of rates, something all the cereal that needs to be applied to freight, it sits well on the goal, but we still have something to do.

Great. Thank you, very much.

Your next question will comes from the line of Scott Group with Wolfe Research. Please go ahead with your question.

Hey thanks. Good morning, Alain.

Good morning, Scott.

So I want to stay on LTL. Can you talk about sort of the underlying tonnage trends and revenue retention? And then, on the operating ratio, maybe just your expectations for fourth quarter and then where ultimately you think the operating ratio here can go?

Yes. That's a very good question, Scott. In terms of fourth quarter I mean this is really the unknown for us. If we look historically those at UPS Freight did not perform too well in the month of December, in the month of January and in the month of February. This is something that we are addressing right now getting ready for this difficult season, okay historically. We're addressing that with the team there with Paul and his team to see what can we do okay to make sure that we're not in a position where our OR is going to go from 91 in Q3, let's say to a 94 or 95 in Q4. So still lots to do. Historically those guys were not doing well in Q4 because of December and they were not doing well in Q1 because of the first two months, right? So we're working hard with the team to make sure that we adjust our people. We also try to change a little bit more of our mix of freight. We're very dependent on retail. And as you know, retail is not doing well in December or in January and February. We need more of this industrial LTL that still exists in the US, right? So this is really what we believe it's going to be important. Like I said, we came out with two quarters with some kind of like a 91 OR, but it's still not a 90 OR company, until we get through Q4 and in Q1. And where we think that this company could go, it will take us some time. Like I said, within the next few quarters, we will be able to confirm that this is a 90 OR company, but this is not the goal. If we…

I was asking about just the tonnage and trends in revenue in Q4?

Okay. Yes, yes, yes. Absolutely. I mean, in order to correct the situation about freight that fits absolutely. So we are – for the last I would say 18 months at UPS Freight now TForce Freight, revenue shipment count has been dropping in 10%, 12% year-over-year. Now this is to me, I think that we are now at a floor with now our sales leadership, and our sales team, okay, because the market is growing, right? I mean, if you look at our peers, most of the guys are up 10%, 15%, 20% year-over-year, right? And we're not like that T-Force Freight at all, because we had lots of things to correct right to build a stable base a base, where we can – solid base, where we could start building on it, right? So I would say that, right now, we are running like 30,000 to 31,000 bills a day. When we took over the company, we were running about the same 32,000, 33,000 bills a day, right? So we've dropped a little bit on the volume, but we've improved – if you look at the revenue per ship and ex-fuel, I mean, you could see some major improvement. What you don't see is major improvement on the average weight of our shipment, okay? The average rate of shipment at TForce Freight is way too low. We have too much of this light freight, right? So this is also part of freight that fits approach that we have to change that. Like I said earlier, we need to have less of this retail freight and more of this industrial freight. But that takes time, but at least the message is there. The mission is there. Everybody knows what they need to do. And if you look at our average weight, they're shipping in Canada is day and night versus what we do in the US, right?

Yeah. And then if I can – can you just clarify on the guidance for the year and what it implies for the fourth quarter? Obviously, there's a seasonality, is there the typical conservatism that we typically think with you guys? And maybe just some thoughts on –

Scott, it's part of our religion. As we always try to over deliver under-promise but over deliver, right? So we're conservative. We feel that 475 to 485, although I know consensus is above that at 485, we're just saying guys, I mean it's too much of the unknown to me TForce Freight December. When I look at that, I said what are we doing, right? But this has been going on for years, and years, and years, okay December, and January and February. So this is why we're prudent. We're cautious. That's why we're saying, hey, guys we think that 475 to 485 for sure we'll try to do better than that, okay. I would like to be a $5 guy for 2021. But I'm not saying that, because of TForce Freight Q4, we have no experience. We don't know. But when I look at the historical numbers, I say guys, we have to be very cautious. For sure, we made a lot of changes that should help, okay? But it's still the first time that we go through Q4, right?

Make sense. Thank you, Alain.

It’s pleasure.

Your next question will come from the line of Brian Ossenbeck with JPMorgan. Please go ahead with your question.

Hey. Good morning, Alain. Thanks for taking the question.

Hey Brian.

I just wanted to go back to the LTL side and just maybe get your thoughts on the cost. As you mentioned that was the biggest lever here in the future. I know you worked on some of the fueling stations and you're talking about some terminals being closed. So, maybe you can put some context around that in terms of what type of impact do you think that can help to get to the sub-90 mid next year and then beyond?

Yes, I think -- Brian I think that cost is really -- to keep our cost takes time. You can't -- so yes, on the equipment side, we're a little bit behind. Why? Because of the supply chain mess that we're going through right now. So, our maintenance cost is still creeping up. Why? Because I mean we don't have the equipment that we need to bring those costs down. Now, this is going to be a little bit of a handicap for us in 2022 because there again it's getting hard to get this equipment. But really when we talk about fuel economy, when we talk about maintenance, when we talk about all these different cost claims and all that, we're heading in the right direction. The biggest thing that we have to work on is when we also work on the freight that fits, we have to work also on the network that fits. So, as an example okay right now we are operating a terminal with 40 bills a day, okay? And guys does it make sense? If you're a 30,000 bills a day company to be running a terminal in the 60,000 people city, does that make sense? Well, we've always done it. Well, let's start asking ourselves. So, yes, Brian, we are shutting down a few terminals because it makes sense. Like in Chicago we're shutting down one. We got way too many. We don't need that. It's a huge fix for us. And so part of the cost okay is going to be to make sure that the freight fits the network, okay, but also the network fits our mission. So, if you go back to when we bought CFI, we were running all the way up to the West Coast with CFI. And…

Great. Thanks. That's all very helpful. Just wanted to ask you about the vaccine mandate in the US here. I know the Canadians are carved out for trucking. And hopefully we'll see something similar on the US side. But obviously you have a big operation in the US as well. So, if you could just give your impression on contingency plans or what else you're hearing in terms of potential carve-out? Because it sounds like we might see some headlines here on that front in the next perhaps a week or so.

Yes. Yes. So, Brian that's what we've been doing is to try to entice our people to get vaccinated. But as you know I mean on the Canadian side, we're doing really well. I mean on the Canadian side, I was just reading this morning that Air Canada and WestJet I think it's -- I would say that they're probably like 95% 99% of their people being vaccinated. So, the Canadian side is not such an issue. It's -- as you say, the US is, right? So, step one, what we've done is trying to explain that this vaccine is safe and try to educate our people. But in the US, it's people are free to do whatever they want, right? So, you've got two major states in the US where they see things differently. And yes, vaccine is good, but you can't really ask employees to get vaccinated. So what we're doing as a first step is we're trying to pull our employees to know this is what we've done in Canada so far pull our employees to know if they want to answer the question because you can't force them to answer the question either that free speech and all these theory. So that is what we've been doing in trying to educating our people that we promote the vaccine, but we can't force no one. So it's going to be again part of the unknown of 2022 Brian. This is what's going to be the reaction of the customer? What's going to be the reaction of our employees? It's already difficult right to find employees, drivers -- okay dock workers. It's not an easy thing to do because of all this COVID thing that happened, right? So now mandate vaccine this is going to be another rock in our shoe. Now we'll be addressing the situation when we also know the rules Brian because right now it's still the unknown right? It's not clear.

All right. Thank you very much, Alain.

Pleasure is mine

Your next question will come from the line Ken Hoexter with Bank of America. Please go ahead with your question.

Hi. Good morning, Alain.

Good morning, Ken.

Can you just clarify real quick before I get to question how many service centers are you at? And how many are you closing?

Okay. So in the US right now in our LTL division because Ken that's your question right now is the US LTL right?

Yes. Yes.

Okay. US LTL so we're shutting down before year end about four centers; small two in West Virginia, one in the Chicago area and another one which I forgot. So small centers okay. With -- now do we know how many are we going to still be running okay at the end let's say of 2022 or 2023? I can't get the answer. I can't answer that. But one thing I could tell you is that Ken is that we're not going to run a terminal with 50 bills a day. I mean this doesn't make any sense. It's too expensive. And like I said earlier I mean even in Canada we don't run a 50 shipment terminal because you have two or three drivers. How are you going to manage two or three drivers in a union environment right? Because don't forget our LTL division in the US is union in its employee model. So you need supervisor and you need managers to manage a terminal because they're not owner-operators right? You have to manage the employees. So when you have only two or three drivers you're not going to have a supervisor and a manager to manage two, three employees. It doesn't make any sense.

Right. And how many terminals are you at now? I just want to understand the scale of the four versus...

It's about 200 that we about 225.

225 perfect. Perfect. All right. And then you noted earlier the 99 OR at the TForce Freight part of the Truckload that was added. Maybe you can talk about -- I mean you've talked a lot about cutting costs and focusing on the LTL-side.

Yes.

What's left to do? Is that still strategic in terms of the Truckload? Is it blending it with other assets that you've got? Maybe talk a bit about what you can do LTL side.

Yes. The UPS Truckload division that we got with the acquisition of UPS Freight was a disaster of a division because it's a dedicated division and the pricing with customers didn't make any sense. The commitment didn't make any sense. So for instance they committed to all freight, but they didn't have the power or didn't have the driver. So when we took over I mean the first thing that Gregor which runs our truckload operation in the US said to me, said Alain, I mean what are we going to do? I mean we're stuck with these contracts. We're stuck with all these deals that were done previously. So I mean option one is we just give 30 days' notice to all these guys and our reputation is going to go to the toilet. Or it will take us some time okay? We will lose money because of the poor management that was there previously. But that's my recommendation Alain. So I said, you know what Greg? I hate to lose money but it's even worse if we lose our reputation right? So let's work hard at correcting the situation. And this is what Greg has done over there. So when you look at TFI Truckload US division in 2022 you'll see over the road division and a dedicated division. So the dedicated division is the old TA Transport America and the UPS Truckload operation that's going to be combined into one. That's what we're doing now. And then you're going to have the CFI over the road okay where the old over-the-road drivers are moving to CFI as we speak okay? And then we're going to have the CFI temperature control which is doing really well, okay? And that will be the model for us to operate in 2022. We anticipate that the profitability of this division will improve big time in 2022 by correcting the situation coming from the UPS transaction with customers addressing also the fleet because if you look at my average age of my fleet in my USPL, I went from two years' average to three. And why is that? Well, because the UPS Truckload division was running trucks that average about seven years, right? So we also think that, although it's difficult because right now as you know, it's not easy to get the equipment but we're working on it. So it's a little bit disappointing when we look at this UPS Truckload division but we know what to do. We're fixing it now, okay? And I would say that probably early in 2022 all this should be behind us.

Appreciate that. If I could sneak one more in on a different segment. The P&C, your margins were just about flat year-over-year after showing some nice gains last quarter. Was there anything in there that you'd want to highlight in terms of costs or anything going on in the P&C segment?

Yeah, yeah. Yeah, we're starting to see, Ken, some inflation in there, okay. And this is also part of Mr. McGonigal's mandate with Brian retiring. Bob takes over working with Jim over there at Canpar Loomis to address this situation, because you're absolutely right. We're really happy to report that our OE is close to 18 points second to none. But still I believe we could do better than that. So -- but we have pressure. We have salary pressure as everybody knows about that. And with that, I mean what can you do? You have to adjust your salaries to the market, which is fine. But then you have to turn around and discuss that with your customers. And this is probably where -- although if you look at our average revenue per shipment, I mean we're a big time but maybe not enough. So Bob and his team his new team working with Brian as a transition I mean the guys are working on a plan. We've done okay. I would not say that we've done really well, but we've done okay. If you look at my peers, the two big peers that we can compare ourselves to, I mean it's a little bit of an issue there but we're working on it.

Great. Appreciate the thought Alian. Thank you.

It’s all good, Ken.

Your next question will come from the line of Ravi Shanker with Morgan Stanley. Please go ahead with your question. Ravi Shanker, your line is open. Please go ahead with your question.

Sorry, I was on mute. Morning Alain. So you -- the vaccine mandate situation earlier. But can you just talk about the overall labor shortages that seem to be a widespread issue? Are you running into that as well? And what are some of the mitigating actions you're taking there?

Difficult, very difficult in the US, Ravi. I mean not so much in Canada yet. We're having some small issues in Canada but nothing major. But in the US, absolutely, our Truckload division in the US not so much the LTL. I mean the LTL, I think that our crew is okay. The way we pay our people is really very impressive for them. So -- but the Truckload absolutely it's a big, big issue. It's a real big problem. And this is why if you look at our revenue, I mean it's tough. It's really difficult. So what are we trying to do? I mean, we're trying to convince drivers to join the CFI team. And we're also trying to reduce our average overhead cost because if you look at our management salary for CFI, I mean we are lean and mean, as lean and mean as our Canadian operation. But in our dedicated, which is the old TA and UPS truckload, there's lots that we could do there. But in terms of people, it's very difficult to find quality drivers as we speak. Everybody is looking for that now. The freight is there. Our revenue per mile is improving every day. But the problem is to find the people, right? And it's a big issue. And this vaccine thing there, I don't know if it's going to help. So if it’s another issue that creates a more headwind to bring people in, it's going to be difficult for the industry.

Got it. So maybe as a follow-up given everything you've told us so far on this call Clearly it looks like, there's a bunch of margin momentum in both the LTL and the TL business. The top line is growing as well. You said in your prepared remarks that you're still pretty active in M&A.

Yes.

Just maybe a sneak peek into 2022. And kind of you said you would like to be a $5 guy in 2021. Would you like to be a $6 guy in 2022?

It’s got to be the goal. It's got to be their goal. Now, Ravi, I have to tell you that I'm in the budget season right now. So I'm starting our meeting with our executives. So I'm a little bit ahead of the game. So I hope those guys don't want to kill me with that. But to me, it's going to be a nice target for us. $6, it could be a little bit of a stretch but we're always conservative. So, I mean I think that we have the crew. I think that we have the potential. And for sure TForce Freight is the diamond in the rough of the company. We have a great executive team there has been supported also by some of our Canadian executives. And we're just starting. Like I said earlier, we bought this company five months ago. It's a huge company, right? It's big right? So it takes time. And it's a change of culture too. I mean the TFI culture is different than the culture of the previous owner. I mean we're not the same. So we have to bring down, okay, the responsibility to the terminal level. If you look at TFI our head office is small I mean maybe less than 100 people. Why? Because we have our operation responsible from everything from A to Z, right? And us, we're just there to make sure that everything is working well at head office.

Got it. No pressure on those guides for 2022. Thanks so much for the thought.

No.

Your next question will come from the line of Walter Spracklin with RBC Capital Markets. Please go ahead with your question.

Yeah. Thanks very much. Good morning, Alain.

Hey. Good morning, Walter.

So on the labor shortage issue, can you give us some insight as to whether -- what aspect of your business is it hurting? Are you losing volume that you had previously and just can't service? Are you just not able to grow? At what level and to what degree is the labor shortage hitting you, particularly in the US operations?

Yes, yes. You see, Walter, to me -- my approach to that when I talk to the operational guys is guys, let's try to hire, okay, as many people as we can, train them, educate them, et cetera, et cetera. But then, when everybody is looking okay, for drivers okay, it's a very difficult job to do. So you've been looking at TFI for a long, long time Walter. And you know our approach has always been. When this push comes to shove what do you do? Well, you do what we're doing now is you're buying a truckload company like we just did in Quebec, okay? And pretty soon you may see us buying a small truckload company in the U. just to beef up the team, okay? And you get the asset. You get the trucks. You get the people. And sometimes those small companies, their mix of customers is not where it should be. So -- and the rates are not where it should be, because of market intelligence is not reaching those guys. And we do have market intelligence now. So that's always been our approach. It's like a hybrid model as you try to get as many drivers, because it's an issue. It's not just us. It's everybody's got the issue. And also do the M&A. The other thing also that we're looking at doing in the US is that there is some different visa permit, okay, that some of my peers are using to have drivers from outside of the US from let's say, Mexico, okay, to be able to drive in the US. So, some of our peers -- when you look at the fact that they're adding drivers, one of the key for them has been to look at this possibility. We're doing also something similar to a certain degree in Canada as well, from drivers from Eastern Europe, right? Not big, but its happening, right? So in terms of the U.S. the drivers from outside the U.S. this is something that is really important. Now our crew in the U.S. was always saying, well, you know what, the previous President is going to change the immigration, but it never happened, right? So right now if you can't beat them join them. So that's another aspect that we're looking at right now, Walter, to add more human resources into our driving fleet and to also eliminate the fact that we're losing guys, because some of them are retiring. Some of them are just saying, you know what, with COVID, I'm out. Right? And now, if we bring the vaccine, the mandate on the vaccine, it's just going to get worse.

That makes sense. Staying on the M&A theme, you've obviously been following the CN proxy contest. And part of that they provided was the possibility of divesting of their non-rail assets and intermodal assets. Do you feel that -- are you too large to be able to be in the running for those if they do come out from a regulatory standpoint, or do you see that asset group -- and I'm referring to transact, H&R, possibly even the barge assets, is something that you'd be able to be in the running for?

Well, you know what, Walter, we always looked at everything that's possible for us to do. And for sure, like you said, we are so huge in Canada that we're not in the same position as some of our peers in Canada. But absolutely, if something that makes sense, that fits TFI's mission, comes out from the rail guys, absolutely we're going to look at it. Now, don't forget, the motto at TFI with the CEO, the actual CEO, is you make your money on the buying, never on the selling, right? So you got to buy at the right price. If you overpay, it affects your EPS. It affects your future, right? It's always been the story. So we'll look at it. But, again, we got to buy at the right price for our shareholders.

Makes sense. And just want to -- congrats to Brian and everyone retiring and best of luck an congratulations to the promotions. Looking forward to meet.

Yes. Thank you Walter. Those guys have done a fantastic job. I'm telling you. Brian and Louis, it's sad, but it's life. I mean, like Brian has been with me for more than 20 years. So, I mean -- but Brian, the decision is, I'm going to turn 62 and, Alain, I want to do something different. I say, okay, Brian fine. Fine with me. It's too bad, but he's done a fantastic job with the P&C. And same thing with Louis with his background at GE. He really helped us with our real estate department and other small division. Yes. But like you said, Walter, it's -- those guys are nice. But again, it opens up the potential for the younger kids like Junior and Chris and to a certain degree also Bob.

Your next question will come from the line of Tom Wadewitz with UBS. Please go ahead with your question.

Yes. Good morning.

Good morning, Tom.

Yes. Good morning, Alain. I guess, when we look at the commentary on repricing, I think, within U.S. LTL, I think you said something like 50% or 60% of the book has been repriced. How long do you think it takes to reprice the other 50% -- 40% to 50%? Is that something that you accomplished in the next quarter or two, or is that something you get to a kind of year-end 2022?

No, next quarter or two, because like I said earlier, Tom, I mean before we bought UPS Freight, I mean, already UPS had a plan in place that was called Phoenix to address the situation. So it didn't start in May when we bought the company. It really started sometimes late Q1, okay, this process. So this is why I feel pretty good by the summer of 2022 this already should be behind us, in terms of making sure that what we're getting from the customer is what we're looking for, in terms of freight and in terms of -- and in terms of rates.

Right. Okay. That's helpful. I appreciate that. And then, I think when you've done so well, just quick clarification I know you've kind of barely had your hands on UPS Freight for very long. But it's been so good that I think there's a lot of enthusiasm about what you could do next. I apologize for a question that's kind of looking further out. Or I don't know maybe you like that. But what -- can you do else can you do LTL in the U.S. that's a mix of union and non-union or if you did [indiscernible]?

Absolutely, I mean we could do union we could do non-union. Because if you look at our track record in Canada, I mean, if you look at for instance cavalier although, it's small, it's non-union. If you look at West Freight although, it's small, it's non-union. If you look at TST, it's big, and it's union. But if you look at Ouik X, it's also big, but it's non-union. So in Canada, we run a union shop or a non-union shop. It's got nothing to do. I mean us, its union or no union, for sure it's a little bit of a change, because you don't manage this maybe the same way, because with a union you got a contract and you respect it. But in non-union also, you don't have a contract that's been written okay, with a third-party which is the union. But you also live by the same kind of rules that you have in a union shop. I mean, basically, maybe a little bit less flexibility, but that's not a big deal. So for us to be growing in the U.S. once we have stability, once -- because right now, my biggest problem is, I have no history of Q4, okay, under the TFI. The only thing I know is, Q4 under the old management, I mean the old ownership, right, and the same thing with Q1. So this is why we're very cautious okay, about okay, what may happen in four and then one. But once we're done with a year and we have a solid plan and a track record, if we do some M&A in the LTL for us, a union or no union, doesn't change anything.

Okay. And it sounds like that's something you would be interested in doing more of.

Absolutely, I mean if we can find another diamond like, UPS Freight, UPS Freight is a great diamond. It's just a little bit rough, okay? And we're going to spend next year or two to polish this diamond. And I'm telling you, it's going to be a very bright diamond, once we're done. It's got the potential. It's got the size. And we have the crew there. We have the people. So it's going to be a very shiny diamond, down the road. Now, I mean, we like the LTL business. I mean, we are the most important LTL player in Canada. In the U.S. we're small. I mean, we're probably number five or number six, so lots of potential for us to grow in. It could be a union shop, but it also can be a non-union shop.

Great, okay. Thanks so much for the insights.

Very good, Tom.

Your next question will come from the line of Kevin Chiang with CIBC. Please go ahead with your question.

Good morning, Alain. Thanks for taking my question here.

Good morning Kevin.

Maybe I could just ask on, the P&C front. Sequentially, revenues were down quarter-over-quarter. And I guess I'm a little bit surprised by that just given the…

Yeah.

… reopening trends we saw in the third quarter in Canada.

Yeah.

Just wondering, if there's anything you would call out as to maybe what drove that sequential decline.

Yes. That's a very good question, Kevin. And you're absolutely right. So in the summer, okay, we made a decision to go away from some freight that we were getting from two specific customers that were outside of our network. And that came from all this big push on e-commerce that happened over the last 12 months. And this rate was mostly given to an agent, okay? And those agents took advantage of the situation. So we said guys, I mean, so let's make sure that the freight that we take from those customers fit the network that we operate. Yeah, sometimes we can have a shipment that we have to give to an agent, okay? If this agent is fair and his rate okay, we'll work with this guy. But last year, this is what happened. And we took a correction. But at the same time, Kevin, okay, what we're doing is, we're adding trucks. We're adding also drivers. So if you look at my MD&A, you'll see that I've got more trucks. And you'll see that in my expenses, not labor expense but the other expense. You'll see that it's less because we give less freight to an agent. So, we are building more and this is going to be one of the target of Jimmy, the guy who runs Lumis and also working with Bob is to expand our coverage in Canada, so that we have to -- we can service more of ourselves directly. So, I don't know how many ZIP codes that we service right now in Canada. I would say probably 80%. Does it make sense to cover 100% like a pure leader? probably not. But can we do -- let's say that we are 80% can we do 82. Can we do 83? Can we do 85? I think so. And this is going to be really the goal so that we could go back to growth like you just said earlier.

Excellent. That's great color there Alain. Maybe just another question. One of your Canadian peers or competitors suggested the Canadian market, we could see an acceleration in pricing next year. The markets lag the US maybe six to 12 months. When I look at your Canadian LTL revenue per shipment, let's say I'm tracking about two-thirds of what you're getting in the US. Do you see an opportunity to see elevated pricing growth in Canadian LTL -- maybe not what you're seeing in the US today?

Well, Kevin that's a very, very important question. I've been saying that for so long, okay? The Canadian LTL market runs at a discount versus the US market in terms of quality of revenue. And that's why we're showing you the average revenue per shipment, the weight versus the US. And you came to the right conclusion, okay is that we are running Canada like a bunch of discounters. Now, the difference is the US is way more organized than the Canadian ones, right? So, as long as us and our peers like you just talked about are taking over more and more of these LTL company in Canada that are nice and they're happy with 2% bottom-line, we will always have this problem Kevin because if you look at the US, you got companies that are really focusing with 70 ORs and 80 ORs. And those guys are doing great. In Canada companies like us with an 80 OR and LTL in Canada, it's an exception. I know because I bought a few. So -- but if our peers and others are starting to wake up and smell the coffee and charge the right price for the service, absolutely we could get there. But that will take time Kevin. It's not going to happen within the six months. There are too many clowns in Canada. Too many clowns.

That’s great color Alain. Thank you. Have a great weekend.

Thank you. Likewise.

Your next question will come from the line of Jason Seidl with Cowen. Please ask your question.

Thank you, operator. Good morning Alain. I wanted to talk about a division that hasn't gotten a lot of airtime here on this call. Logistics, you almost doubled your revenue. Your profits were up nearly 50%. How should we think about growth in that division on the revenue side in 2022? And also how should we think about margins going forward?

Yes. Very good question. I mean -- so you've got two big components in there Jason. You've got our WW operation that we bought a year ago from Donnelly, okay? Finally guys we were able to move from their SAP to Oracle. So, we did that late September into October. So, we are completely off Donnelly. And Tom, the leader there is doing a fantastic job adding customers. So, we are growing there okay, nicely. We're also growing the gross margin. So, we're getting gross margin at WW. The goal is to really get to a 20-point gross margin. We're not there yet. But I think that within the next 12 months we should get closer to 20. And then bottom-line over there we have to be closer to a six than a four or five, right? But the guys they have the mission. They know what to do and this is where we're going to go. The other major component is our Canadian and our US last mile operation. So, what we've been doing let's say in Canada is like our OE is just through the roof. We're doing really, really well and we're adding customers. So, the largest e-tailer, okay that we had as customers I'll give you an example. We used to do $50 million of business with this guy in 2020. In 2021, we'll do only $25 million, and in 2022, we'll probably do zero because this guy likes to be partnered with truckers that don't want to make money. And at the same time we are replacing this guy with newer customers. So, if you look at my Canadian operation, my revenue because I'm losing this big customer, okay replacing it, so you're going to see me more flat okay in 2022 versus 2021. But on the US side, that's a different story because in the US side, we lost this guy like four years ago, right? So, the US side, what we've done is we brought the Canadian team to really move the OE from let's say a mid-single-digit kind of an operation to a low double-digit. So, that's where we're at now. So, now we are building on that and we're going to start growing that. So, we've also split between the normal e-commerce business distribution that we do with our medical. So, we have a new leader also running our medical division there in the US. So, I would say to make a long story short is we believe that this division is going to keep on growing probably low double-digit like in the 10% to 12%. But more importantly Jason is we're focused on bottom-line. And those guys will do really, really well in 2022. But more importantly and this has got to be stressed out. I mean look at our return on invested capital there, 24 points trailing 12 months. This is unbelievable, right?

It was an impressive result for sure. And I appreciate the thorough response on the logistics side, Alain. I wanted to go to -- get some clarity a little bit. I know you mentioned in TForce Freight the failure to be able to get enough trucks from the OEMs. I think you said 1,100 trucks are ordered. You only got 500. Can you give us I didn't hear if you can give us an update on when you expect to get the remaining 600 trucks into the number.

Yes. Jason so what happened is that the order that we placed with the manufacturer was 11. Then about a month ago they told us -- after telling us don't worry, don't worry, don't worry They told us, well you know what guys we have issues with this with that. So, they have a long list of issues. So, they said guys we'll be able to provide you only 500 trucks. And by the way we're committing to provide you 160 trucks by the end of October. Well, the end of October is now, right? And so far we didn't get the 160 trucks. So, we may get probably 100 trucks by the end of October if we're lucky, right? So, the first 500 trucks, in my mind, Jason won't reach us before probably the end of Q2 2022. So, our approach has been guys we have to bring more supplies in. So, this is what we have right now. The forecast for us in 2022 is 3,000 trucks in the US. This is LTL and truckload. So, right now we have commitment talking with Greg for about 65% of that which is 2,000 trucks and not 3,000. So, that's where we're at today for 2022, but with more than one supplier. So, we got burned a little bit by the supplier that it's always been our main supplier in the US, but he gives us a list of 40 pages of excuse okay that he can't deliver. So, this is why for 2022, we're bringing three more suppliers, okay to the Truckload division and to our LTL division. So, the Truckload division always run two suppliers and we'll keep running that. The LTL order was only one supplier. So, for them, we're adding two more suppliers to make sure that we get what we need.

Alain, appreciate the color as always appreciate the time. Have a great weekend.

Pleasure. Thank you, Jason.

Your next question comes from Konark Gupta with Scotiabank. Please go ahead with your question.

Thanks and good morning Alain.

Hey good morning.

So, thanks for sharing all the details Alain and best wishes for retirees and congrats on all the promotions. Good to see some changes there for sure. My question is really, kind of, big picture here, kind of, thinking like you've been in this business for many years. You have seen many cycles. I don't know if this cycle is way too different. Like a lot of people would suggest that than the prior cycles clearly. Where -- like how do you see the cycle evolve going into 2022 and maybe coming out of 2022? Like where do we see this end and how does it end? Are we going to see further pricing power in the industry, because there is cost inflation, because capacity drivers are short and supply fleet issue on supply, or do we see -- because of these inflationary pressures, do you guys want to be incrementally focusing on the cost structures? Because pricing is good today, but it may not come back tomorrow, like how do we see the whole picture here? Where is your crystal ball?

Yeah. Very good question. I think that this -- what we're going through now is unprecedented. I mean if you look at the cycle over the last 25 years, so market was great. So the truckers being stupid. We were adding trucks. We were adding drivers. And then at one point the demand starts to slow down. Then the price just went to the shed. And then the truckers didn't make enough money, et cetera, et cetera. And then after a few years market comes, back the economy. And it's been going on like that for the last what 30, 40 years since the market was deregulated in Canada or in the US. The big change that I see is that with people just retiring, and we see more and more of that early retirement. And the fact that this COVID thing really affected a lot of the way people think about working now. And everybody is looking for people. I mean not just our industry, everyone. You're talking hospitals. You're talking transportation. Every sector of the economy in North America, everybody is looking for people and it's an issue. So I think that -- I don't have a crystal ball, but I think that we're going to have a lot of pressure on wages. And we're going to have a lot of pressure on recruitment. And retaining our people is going to be the key and to reduce this turnover. And this is where some of the TFI division, because they're union, they have got some tools because of the fringe benefits are so interesting like pension fund and medical and all that. So we see less turnover in the sector than others, right? So I think it's going to be a big story over the next probably five years that it's going to be hard to find people. Now technology will help us probably to do more with less down the road. So for sure there's going to be a solution down the road. When? I don't know. But this situation that we're going through right now to me is absolutely sure we're going to live through that probably until the end of 2023.

Yeah. No, that makes sense definitely. Can you suggest like in terms of what you are seeing right now in terms of pricing dynamics as you price some of the contracts or head into some discussions with new customers? What, kind of, pricing are we looking at in 2022? Like right now in 2021 I think a lot of the US guys would say we are in the teens. It's double-digit possible 2022, or is it more like high-teens?

Oh, yeah, oh, yeah. See Konark right now when the customer calls, you don't talk about price. You talk about can you provide the service please? Can you help me? See the dynamics has changed so much in the last two years. It's unbelievable. I mean when you talk -- and us, we don't want to be aggressive and to have the customer feel that we're taking advantage of them. So this is why we're going one step at a time. We're trying to explain to the customer that this is a situation that is completely out of our control, that we have to pay our people more. But the pricing pressure on shippers is not going to end in 2022 and probably not in 2023. I mean because right now the shippers -- the first question is not price, it's service. Can you provide the service please? And just look at the mess at the -- this is a real mass right? If the supply chain is all messed up and they are now working what 24 hours a day, seven days a week okay? And the question is please get this right in right? So, the price of a container is just going through the roof. If you try to ship something air, I mean it used to be $2 a kilo. Now it's $5 a kilo. It's -- the pressure is all over. So this is why we're starting to see inflation right? And if you listen to the guys that know about that they say "Well it should be short term." We'll see.

Thanks so much. Hopefully we’ll see some flying culture. Thank you.

Thank you, Konark.

Your next question will come from the line of Benoit Poirier, Desjardins Capital.

That’s okay. Good morning Alain and congrats for the quarter.

Thank you, Benoit.

Yes. So my question is on the US TL. You addressed a list of action with Transport America CFI going into ’22. I would be curious to get more color about the objectives in terms of improving OR, improving also the return on invested capital. And at one point in time is there an opportunity to maybe divest the same way you did with Matrec a while ago? Just wondering if you have received some inbound calls and there -- to tie to for your U.S. TL Alain.

No. No to answer your question, easy I mean in terms of selling the division nobody called us yet. But that being said what we're trying to do there is CFI over-the-road business has always performed really, really well right? And we're still running in the low 80s OR at CFI. The problem we always had was TA okay always been an issue. And now UPS truckload is even worse than TA because of the way this company was managed with the previous management team. So what we're doing right now is that from TA the over-the-road guys are moving to CFI. So CFI is growing in terms of okay, drivers with their over-the-road division and getting smaller. So let's say by the end of 2021, TA will be a 500 truck company with dedicated freight only okay? And this will also be combined with okay, UPS Truckload which is about 700 to 750 dedicated truck, okay? And that will become into one. So in 2022 you're going to look at our Truckload division you're going to have CFI over the road. You're going to have CFI Dedicated and you're going to have CFI temperature control and CFI Logistics. So this is all going on as we speak. So Greg and his team are doing a fantastic job because this is not easy to do. I mean move a driver from TA to CFI, it's a different environment. It's not the same TMS etcetera, etcetera. So we're doing that now. And once this is all done so by Q1 of '22 this is all done. Now we're going to be moving on to the McLeod software. The TMS okay that has been chosen okay, to be unified with our dedicated and over the road division. Now by doing that okay…

That's great color Alain. And my follow-up question is obviously, when we look in terms of M&A, you ended the quarter with a very strong balance sheet. UPS integration also is doing well. So are there any particular segments in terms of M&A, you would pay more attention to in 2022? And you made some comment about the fact that the Canadian LTL market is maybe less organized in Canada versus the US. So do you see an opportunity maybe to make a bolder move on Canadian LTL and maybe try to organize similar to the US, Alain?

Yes. Yes for sure LTL we love LTL. I mean LTL is 47% of our revenue today. We love LTL. That's 25 years ago, that's where I started with LTL, right? So for sure both US and Canada, US is different because we need to be more stable with TForce Freight. We have to know more, okay? But for sure the US LTL, if we could find the right fit, we'll be looking at that. On the Canadian side, we passed on one transaction because we were too busy with TForce Freight at the time and it's been taken over by one of our peers, it's okay. It's fine. If we – if there's another one, absolutely we're going to look at it. And we're on the lookout. I mean – but you'll see us – you've seen us very active on the M&A side in Canada in Q3. You'll see us finish very strong in Q4. We have a lot of good stuff on the pipeline on M&A that will be closing in Q4 on the Canadian side and even some on the US side small transaction but very, very interesting and also creating value for our shareholders because remember what I said all the time. You make your money in the buying never on the selling.

Yes. Okay. That’s great comment. Thank you very much for the time, Alain.

Pleasure, Benoit.

Your next question will come from the line of Cameron Doerksen with National Bank Financial. Please go ahead with your question.

Yes, thanks. Good morning.

Good morning, Cameron.

So I just had two quick questions for you. One is just with regards to how we should think about the – I guess the less than truckload or the TForce Freight, how the revenue in Q4 is sequentially relative to Q3? I mean there must be some history there. But I'm just wondering what was – I'm assuming it's obviously seasonally a weaker quarter. But how much of a percentage drop which you typically see from Q3 to Q4?

Yes. So what the guys have told us on that Cameron is about 8%.

Okay. And the second I guess sort of outlook question here is really with regard to the CapEx. I mean you gave us a number for Q4. But with all the – I guess the truck buying kind of push to the right here what does CapEx look like for 2022 now?

Well, that's a very good question. And it's hard to answer that, Cameron, because we get commitment from those guys but they don't deliver right now, right? So it's very, very difficult to see. So what we're saying about Q4 is about 100. We hope that we get 100. That's what's supposed to happen, okay? But we never know. They can call us and say, oh we have an issue with it. And finally, the trucks don't come in, okay. But that being said for 2022 so far, okay, we know we have commitments for about 2,000 trucks, okay, from suppliers, different suppliers. Our demand is three, okay? So we're still short. And the guys are trying to get more, but we may end up buying only 2,000. So 2,000 trucks net of disposal you're talking about US$190 million right of disposal, net CapEx just for the trucks in the US, right? So if you add to that, okay the trailers, and if you added to that the Canadian operation normally in 2022, if everybody says, yes, okay to what we're requesting, you're going to be talking probably closer to 325 net of disposal.

Okay. That makes sense. That's very helpful. That's was all I have. Thanks very much.

Very good, Cameron. Take care.

Your next question comes from Tim James with TD Securities. Please go ahead with your question.

Thank you. Good morning, Alain.

Good morning, Tim.

Just wondering if you can – you sort of talked about some of the initiatives or actions you've been able to take to deal with the labor challenges, the M&A is always there. You talked about the special visas. And you've kind of covered off the opportunities in US LTL. I'm wondering, if there are any other areas of the business just given how large TFI is now and how diversified you are, are there other areas where you're able to kind of take advantage of the scale of the business in helping to offset some of the labor challenges?

Yeah. You see – I mean, you're absolutely, right, because of our scale and also, because of TFI has always been a best employer in terms of what we offer our employees. But – this is on the Canadian side, because on the US side, I mean, until just a few years ago, Tim, I mean, we were not really well known, right? So I mean that's why if you look at labor, if you look at staff on the Canadian side, we're not in the same position as we are in the US. So the Canadian operation if you – if we look for people in Canada, and you say well it's TFI, I mean everybody wants to be part of TFI. Now, on the US, side if you say TFI who is TFI? Now for sure we have way more authority today than two years ago, but it's still not the same cloud as we have in Canada, right? So this is what we're trying to build okay now more and more okay with all the investment that we made in the US. The acquisition of UPS Freight was really helpful for us to have people in the industry in the US to say, hell, wow okay. Well, now these guys are becoming a significant player. But we don't have the track record of some of our peers, okay, like UPS, or FedEx, or OD, or whoever have been in the business for a long, long time. Right? So, it's a little bit of a handicap that we have in the US versus some of the good peers that we're competing with, but not an issue at all in Canada.

Okay. That's helpful. I guess one more quick question. If you look at each of the four segments independently and we think about on the one side there has been cost pressures for a number of reasons.

Yes.

Well, documented throughout North America. On the other side, lot of those same sort of events are providing pricing power on that. As you look at each of the four segments, can you just say -- maybe it’s not possible too? Do you feel the overall blended environment has been in that benefit or net negative in terms of profitability?

No. I would say, Tim, it's been a net benefit. Just look at our P&C okay, although we've not been growing in Q3 as much as we were in two and three last year and all that. But e-commerce is really a huge benefit for TFI on the Canadian side okay, and also on the US side with our last mile operation. So, that being said, if you look at our LTL, the same story, same story. We have fantastic stability in Canada with our people in our LTL. US is still not clear, because I mean we own the comps for five months. And on the specialty truckload our Canadian operation are really solid. I mean we have a dominant presence in Ontario and in Quebec and growing more into Western Canada now big time. So I mean if you ask me to go back to 20194 and now look at 2021. I mean if you compare TFI 2019 with 2021, I mean we made huge improvement in our costs and the way we service the customer. And all the M&A has been a real, real benefit to our shareholders. So I mean 2022 is going to be another challenging year for us, because there's still this vaccine thing. There's still the shortage of people. There are still a lot of issues that we're going to address, but this is the fun of being in that business. I mean every day it's a difference. It's never boring.

Great. Thank you very much, Alain.

Pleasure, Tim.

At this time, there are no further questions. Do you have any closing remarks?

Yes, operator. So, well, thank you operator, and thank you everyone for spending time with us this morning. So we appreciate that very much. And as always, we thank you for your interest in TFI International. We're looking forward to sharing our full year results in February. And in the meantime, please don't hesitate to reach out with any questions. Thank you again, and I hope that you all have a wonderful day. Bye.

Ladies and gentlemen, thank you for participating in today's TFI International's third quarter 2021 results conference call. You may now disconnect.