Old Dominion Freight Line Inc

NASDAQ:ODFL

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and welcome to the Old Dominion Freight Line Third Quarter 2022 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Drew Anderson. Please go ahead.

[Drew Andersen, Senior Director, Product Management]

Thank you. Good morning, and welcome to the third quarter 2022 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 2, 2022, by dialing 1-877-344-7529, access code 3324067. The replay of the webcast may also be accessed for 30 days at the company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

As a final note, before we begin, we welcome your questions today, but we ask in fairness to all that you limit yourselves to just a couple of questions at a time before returning to the queue. Thank you for your cooperation.

At this time, for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead, sir.

[Greg Gantt, President, CEO & Director]

Good morning, and welcome to our third quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions.

During the third quarter, the Old Dominion team extended the company's track record for double-digit growth in revenue and profitability. The third quarter of 2022 was our seventh straight quarter with double-digit revenue growth and the nice straight quarter of double-digit growth in earnings per diluted share. These financial results reflect the ongoing strength and demand for our services as we continue to deliver value to our customers by providing superior service at a fair price.

Consistently executing on this key element of our long-term strategic plan is critical to our continued ability to win long-term market share. We were pleased to provide our customers with 99% on-time service and a cargo claims ratio of 0.2% during the third quarter.

Service means much more than just picking up and delivering our customers' freight on time and damage free. In fact, MASTIO & Company conducts a comprehensive industry study each year that most recently measured carriers on 28 service and value-related attributes. We are extremely proud that MASTIO recently named OD as the #1 LTL provider for the 13th straight year. And this latest survey, shippers and logistics professionals ranked OD as #1 for 24 of the 28 individual attributes. The consistency of our service performance over many years, as validated by MASTIO reflects the commitment from each of our team members who work hard every day to go above and beyond for our customers.

Our superior service performance has not only allowed us to win market share over the long term. It has also supported our long-term yield management strategy. This simple strategy focuses on increasing our yields to offset our cost inflation each year while also supporting our ongoing investments in capacity. We have consistently invested 10% to 15% of our revenue in capital expenditures each year regardless of the economic environment.

Investments in our fleet and technologies have helped us improve our operating efficiency and customer service, while the significant investments in our service center network generally support our growth. We have expanded the capacity of our service center network by over 50% in the past 10 years while doubling our market share, and we believe further investments will be necessary to ensure that our network is never a limiting factor to our growth.

We believe a big part of our value proposition is having available capacities when our customers need it the most. The capacity advantage we have in the marketplace was especially critical for customers that dealt with various supply chain issues over the past 2 years, while industry capacity was generally limited. We increased our revenues by over $2 billion over the past 2 years, which would not have been possible if we had not consistently increased our network capacity.

Our business model continues to prove itself time and again, and we are extremely grateful to our customers for their trust in us. Freight is a relationship business, and we believe our superior service, available network capacity and consistent approach to pricing have allowed us to strengthen our long-term relationships.

We also believe the value offered by a carrier is becoming increasingly important to shippers, which is why we remain absolutely committed to executing on the fundamental elements of our long-term strategic plan. As a result, we will continue to focus on providing customers with superior service at a fair price.

We will also continue to invest in our OD Family of employees, our fleet and our service center network to support our long-term growth initiatives. Old Dominion has the financial strength to make these investments, and as a result, we believe we are better positioned than any carrier to produce long-term profitable growth and increase shareholder value.

Thank you for joining us this morning, and now Adam will discuss our third quarter financial results in greater detail.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Thank you, Greg, and good morning. Old Dominion's revenue grew 14.5% in the third quarter to $1.6 billion, and our operating ratio improved to 69.1%. The combination of these changes helped produce a 36% increase in earnings per diluted share for the quarter.

Our revenue growth was due primarily to the 17.4% increase in LTL revenue per hundredweight, which more than offset the 2.6% decrease in our LTL tons. We believe this decrease in LTL tons reflects the overall softness in the domestic economy that has generally caused a decrease in demand for our customers' products. Demand for our service has remained strong, however, as customers are continuing to take advantage of our value proposition.

On a sequential basis, revenue per day for the third quarter decreased 3.8% when compared to the second quarter of 2022, with LTL tons per day decreasing 4.3% and LTL shipments per day decreasing 3.6%. For comparison, the 10-year average sequential change for these metrics includes an increase of 3.6% in revenue per day, an increase of 1.2% in tons per day and an increase of 2.4% in shipments per day.

At this point, in October, our revenue per day has increased by approximately 8% when compared to October 2021. This month-to-date revenue performance includes a decrease of approximately 7% in our LTL tons per day. As usual, we will provide actual revenue related details for October in our third quarter Form 10-Q.

Our third quarter operating ratio improved to 69.1% with improvements in both our direct operating cost and overhead cost as a percent of revenue. Many of our cost categories improved as a percent of revenue during the quarter, although our operating supplies and expenses increased 300 basis points due primarily to the rising cost of diesel fuel and other petroleum-based products as well as the increased cost for parts and repairs to maintain our fleet.

We more than offset the impact of this increase with the improvement in our salaries, wages and benefits and purchase transportation. The improvement in these expenses as a percent of revenue reflects our best efforts to effectively match all of our variable costs with current revenue and volume trends.

Old Dominion's cash flow from operations totaled $514.2 million and $1.3 billion for the third quarter and first 9 months of 2022, respectively, while capital expenditures were $181.7 million and $504.8 million for the same periods. We noted in our release this morning that our capital expenditures are now estimated to be $720 million for this year. The decrease from our prior estimate is primarily due to the timing of equipment deliveries that we expect to be pushed into next year. We will provide further details about our 2023 capital expenditure plan with our fourth quarter earnings release.

We utilized $345.4 million and $1.1 billion of cash for our share repurchase program during the third quarter and first 9 months of 2022, respectively, while cash dividends totaled $33.4 million and $101.4 million for the same periods.

Our effective tax rate for the third quarter 2022 was 23.9% as compared to 25.2% in the third quarter 2021. We currently anticipate our effective tax rate to be 25.6% for the fourth quarter.

This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

[Operator]

[Operator Instructions]. The first question today comes from Jack Atkins with Stephens.

[Jack Atkins, Stephens Inc.]

Okay, great. So I guess, first, Adam, I'd be curious if you could maybe give us the full stats for September in terms of tonnage per day on a year-over-year basis. And was there anything sort of unique kind of going on in September with regard to the end of the quarter with the hurricane? And I guess just kind of wrapping up that September, October commentary, I guess, do you feel like that the sequential trends are the underperformance versus seasonality is maybe accelerating somewhat. And if you can maybe provide some color on sort of what's driving that. So anyway, I know a lot there, but just sort of curious on current trends and if you could provide some additional color there.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Sure. We'll test my memory, I guess, and see if I can remember all of those. But so for September, looking at on a year-over-year basis, our tonnage was down 5.4% and then shipments, those were, let's see here, shipments per day were down 6.8%. So we had a little bit of an increase in weight per shipment for the month. It was up about 1.5% overall. And so if you remember, we've talked before about the weight per shipment trend last year, the third quarter was our low watermark, if you will, where we were at a total of 1,538 pounds. So we did start seeing a sequential increase from the third quarter to the fourth quarter of last year. So that should somewhat normalize as we transition.

Looking at things on a sequential basis for the tonnage, we did have in September about a 0.4% increase versus August. The 10-year average is a 3.9% increase. So similar, I think what we saw in the third quarter is similar to the second quarter. We did underperform for the total quarter, the average sequential trends in 2Q. And we did, again, this is the third straight quarter of underperformance, if you will, but we started out with the decrease in July, which is pretty typical. We were down 4%. The 10-year average is down 3%. And then we dropped a little bit further in August, which is normally about flattish. And then we just didn't see the sizable increase that we typically do in September.

I will say that so far and obviously, there are still days to be finished for October, but we look like we are trending pretty much right in line with normal seasonality at this point, which I think is an encouraging trend. Certainly, a lot of work left to do as we go through the fourth quarter. Typically, we would see an increase in November and then it drops off in December. Normally, overall, you've got a decrease on average for the fourth quarter versus the third. Last year, we did have an increase, which makes the comps quite a bit tougher in the fourth quarter. And we anticipated that really is going into the beginning of this year, really.

So I think it's just one of those things, like we said in our prepared remarks that certainly feels like demand for us. The feedback that we're getting from our customers has been positive. We're seeing good trends with our national account reporting. We're not losing customers. So things are all trending favorably in that regard. It's just a matter of the demand, we feel like is not out there for our customers' products, if you will. We're just not picking up as much freight for those same customers that we may be making stops every day at their locations.

So just continuing to kind of work through these challenges, if you will. We certainly made adjustments all year. I think when you look at the operating ratio performance in general and what our service metrics are, we've been making adjustments to this lower-than-anticipated volume environment that we've been in. But we typically, when we've been in a down cycle, we've been in a negative GDP environment this year. A lot of times, we'll see 3 to 5 quarters where we kind of underperform our 10-year average. I always like to remind everyone that our 10-year average includes doubling their market share. But this, like I said, was the third quarter where we underperformed. We're going into the winter. That's always a little bit seasonally slower anyways. And so we feel like based on what we've been able to do so far this year producing over $900 million of revenue growth, good solid operating ratio improvement. We'll get through this winter and then perhaps we start seeing some build up once we get into the spring and I'm talking on a sequential basis, start seeing that build up back in the business once we get into the spring. Maybe sooner, obviously, a lot's going on with the economy. But that's some of the baseline for what we're thinking right now.

[Jack Atkins, Stephens Inc.]

Okay. That's very helpful color, Adam. And you got all my all those different questions in there. I guess maybe for my one quick follow-up. Would just be curious to kind of get your sense for sequential, how we should be thinking about the sequential change in operating ratio 3Q to 4Q? I know to your point, typically, tonnage is a bit softer sequentially. And there's -- I'm sure a lot of puts and takes out there. Historically, it's about 200 basis point degradation 3Q to 4Q. Is that the right way to think about it this year? Or just some additional color would be helpful.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Sure. Yes, for one, the fourth quarter, we usually have an annual actuarial assessment that can impact, if you just look at the raw numbers, the pure average. But it's usually about a 200 to 250 basis point sequential deterioration from 3Q to 4Q. And I think probably the appropriate target would be about a 400 basis points increase off of 69.1 that we had. And just talking through a few of those puts and takes that will go into it. And I'd say 400, probably plus or minus a little bit, just depending on -- in some cases, some of these expense items I'm about to talk about, but also the top line. But obviously, we've got -- we had a onetime item that favorably impacted our operating ratio by about 100 basis points in the third quarter.

So kind of adding that back to normalized what our fringe benefit cost have been trending earlier this year. Then I think that similar to the 2Q to 3Q change in our general supplies and expenses, we generally see a little bit of improvement from the third quarter to the fourth quarter. I expect that from a dollar standpoint, that should remain somewhat flattish, but as revenue is typically a little bit lower, we'd expect that to increase. Maybe 20 basis points from 3Q to 4Q.

Depreciation is another item. We're still taking delivery of equipment. Normally, you kind of have all your depreciation in there, so I'd expect to see that continue, tick up a little bit.

And then finally, our miscellaneous expenses, those have trended low throughout the year. Those are typically around about 0.5 point. I think we're at 20 basis points, 0.2% in the third quarter. So I expect that to normalize at some point as well. So some of those cost items just may create just a little bit of variance versus what the 10-year average might otherwise suggest. But you know us, I mean, we're looking at every dollar we can from a discretionary spending standpoint and we'll be managing productivity and other costs as tightly as we can as we continue to adjust to current top line revenue and volume trends.

[Operator]

The next question comes from Allison Poliniak with Wells Fargo.

[James Monigan, Wells Fargo Securities]

James on for Allison. Actually, I just wanted to get a little bit more color on September and just kind of wanted to understand if there was a mix shift in the in that month that might have impacted yields and trying to sort of get a sense of what pricing was independent of sort of that mix shift change and sort of how we should think about that moving forward?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes, nothing major that we have not already been seeing certainly that our weight per shipment has been trending higher, as I mentioned, at least through the third quarter. And then our length of haul has been a bit lower as well. That's down almost 1%. So both of those metrics putting a little downward pressure on that reported revenue per hundredweight metric. And which I think we've talked a little bit about that on the last earnings call. Overall, excluding the fuel surcharge, the revenue per hundredweight was up 7%. So we're still seeing good yield performance overall. And then those yields are mix metrics, if you will, somewhat reconcile how we got from the growth rate that we are seeing for the second quarter to the third quarter.

But overall, as contracts are renewing, we're continuing to look for increases and design with our long-term philosophy is we always are looking to try to increase yields to offset our cost inflation. I would say, core inflation is probably a bit higher than what some of these increases we're getting right now just dealing with this inflationary environment. But we're always looking at things on a long-term basis. And so we're continuing to make progress on those renewals, try to get our cost-plus type pricing to ultimately support the investments that we're making back in the system.

We've invested a lot in real estate capital expenditures. When you look over the last 10 years, it's been almost $4 billion of investment in total with about $2 billion going into our real estate network. So I think we've certainly done a good job of making sure we're investing ahead of growth, and we don't want the network to be a limiting factor to our ability to grow. And so it's been important to build in that capacity into the service center network, and it certainly makes years like 2021 and the growth that we've seen in revenue this year possible.

[James Monigan, Wells Fargo Securities]

Got it. And just a follow-up on that, just given the renewals that you're seeing, the sort of efficiency in the network, like if tonnage trends continue negatively or even sort of become more negative, do you just -- is 2023 a year that you can still get OR expansion sort of at or above 100 basis points? Or are you going to start bumping up against fixed costs fairly soon?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, I think the thing that we typically see in the past, and you can look at sort of 2016, 2019, as an example, is when we get into an environment where revenue is flat to down overall, that's something where we are going to continue to invest, like Greg mentioned in his comments earlier, we're going to continue to invest for the long term. And so that often creates a little headwind, if you will, on the depreciation cost as a percent of revenue.

But the OR change that we saw in '16 and '19, the slight deterioration in those periods was pretty much limited to that change in depreciation cost as a percent of revenue. We certainly are looking to manage all of our variable costs to match what those revenue volume trends are. We'll be looking for productivity. And we'll be looking closely at every dollar that we spend. We certainly want to spend dollars when there's an appropriate return that's there and don't want to do anything that it might limit our long-term performance. But you just got to be careful when it comes to discretionary spending.

So we've generally been able to manage all those other costs flat. Our cost structure is highly variable, more than 2/3, almost 3/4 of our cost over now. So we just continue to work those costs as best we can. Look for productivity in any way that we can save money to offset any kind of pressure we may be seeing on the top line.

[Operator]

The next question comes from Jordan Alliger with Goldman Sachs.

[Jordan Alliger, Goldman Sachs]

Just a follow-up maybe on the cost front, looking ahead beyond even the current quarter, you talked about inflation. Is there any relief on the inflation front, whether it be on the wage side. I assume on the purchased transport side, but just sort of your thoughts on sort of the cost inflation environment as we move beyond this? What you're seeing today?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, from a core inflation standpoint, as we go into next year, I think everybody in this country is probably hoping for seeing some type of relief. And really, I think that starts with we've got to have improvement on the energy side. Energy drives inflation overall for this country, and we've got to see some type of movement there. And I think that gives -- kind of removes the hurdle of uncertainty for many business owners and our customers because then it should control what the Fed action may be. And so once you get those, then I think at least cleared, you get reinvestment back in businesses and so forth and hopefully start seeing freight flows once again a little bit stronger at the levels that we anticipated when we started this year. But for us, in particular, salary wages and benefits are probably 65% of our total cost.

And we did just give a wage increase at the 1st of September this year, rewarding our employees for the performance that they've been able to produce over this last year. And so we control that element of inflation. Certainly, on the benefit side, we've seen a little bit higher cost later on some of the medical costs in particular. But as we continue to improve pay time off benefits and some of those other features that we've rewarded employees with.

Another 15% of our costs there are the operating supplies and expenses. Fuel is obviously a big component. I think our surcharge program has been effective at offsetting the increase there, and we hope that we'll see a decrease as we make our way through 2023. And that should help on some of the parts and other component tires and so forth that we've taken big increases on this year.

And then certainly, on the depreciation side, with respect to equipment, we've taken some increases there. We hope some of those moderate as we get into next year as well. We haven't finalized what our equipment orders and what pricing and so forth will look like. But those are some of the biggest elements. We certainly have faced increased insurance premiums like every other carrier over the past several years and again, it's just you got to keep looking for ways that when you know you got an increase in one area. So you've got to try to find some savings in the other.

And the biggest area for us will be to continue to focus on improved productivity with salaries, wages and benefits being our biggest cost element, we can offset. We control the inflation, but we can help ourselves by continuing to drive improved performance in those areas.

[Operator]

The next question comes from Scott Group with Wolfe Research.

[Scott Group, Wolfe Research]

Adam, I wanted to just follow up. I thought I heard you say that core inflation is now tracking above some of the recent pricing increases you're getting. That feels like a pretty big change just for third quarter rent per shipment ex fuel is up 9%. So just add a little bit of color or clarity to what you're saying there.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, just mainly talking about what we've seen in terms of cost on a per shipment basis. And sometimes those per shipment costs increase a little bit more when you're in a little bit softer environment overall. I mean we've still got a positive spread in terms of when you look at revenue per shipment performance versus its cost per shipment. And we certainly think that can continue overall. And that's -- the focus is always to try to achieve 100 to 150 basis points of positive spread overall and what we can get on a revenue per shipment basis with the fuel versus what the cost per shipment with the fuel can be as well. But just looking at things on a pure cost per shipment basis is certainly trending a lot higher than what I had thought.

I thought we would see moderation in the back half of this year, as we started comping against some of the increased inflationary items that we experienced in the second half of '21, but certainly, that moderation hasn't happened. So we're still seeing some pretty big increases, and I think a lot of it is driven by these increased fuel prices that have just remained high throughout the year.

We thought we were going to start seeing some relief a few weeks ago on that as it started trending down a little bit the last 2, 3 weeks. I think it's back up about $0.50 over where we had dropped to a bit prior. But no, no change in terms of of what we're going to be looking for from an increased standpoint and what we think we can achieve because again, we've got to have cost plus pricing in our business that offset that inflation, but more importantly, to keep supporting the reinvestment back in our business.

[Scott Group, Wolfe Research]

So you weren't trying to imply that pricing is all of a sudden slowing a lot or anything like that.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

No, not at all. And if I said that, I misspoke for sure. Now we're really pleased, I think when you look at in terms of the yield trends that we've had all year. They certainly have been very positive, and that's continuing into October. And we didn't -- I gave the number in terms of what we're seeing from a -- at least as of right now, what the tonnage is doing. But certainly, that implies that, that revenue per hundredweight, excluding the fuel is pretty consistent with where we were, maybe a touch higher for the third quarter overall.

And so we would certainly expect that as we continue to go through renewals, generally, mix has held comps in that number increases sequentially from quarter-to-quarter. And certainly, that will be the objective as we have increases coming due, and we'll be coming up fairly soon on the general rate increase as well. They will apply to about 25% of our business. But all of those factors, we've not really seen any change in the pricing environment.

It's remained steady throughout this year. And certainly, this quarter the increases we've been able to get.

[Operator]

The next question comes from Chris Wetherbee with Citigroup.

[Christian Wetherbee, Citigroup]

Adam, I just wanted to make sure I understood the sequential cadence in operating ratio from 3Q to 4Q. I think you said it was maybe 400 basis points plus or minus relative to the 69.1%. I just want to make sure that, that is right. And then as you think about sort of the potential variables that maybe you could add to that. I guess that would kind of get you closer to OR -- flattish OR on a year-over-year basis, I think you're still below it based on the guidance. But I wanted to get a sense of conceptually as we start to string out over the next few quarters, what are some of the dynamics that could then start to potentially push a deterioration in the operating ratio?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, I mean, obviously, the top line is the biggest element. Certainly, when you've got revenue, that covers a lot of cost and some of those fixed cost elements that we have. But you have the 400 basis point, plus or minus, that was off the 69.1 reported operating ratio. And obviously, just the delta versus the normal cadence, the biggest being that 100 basis point benefit that was onetime in nature that was recorded in the third quarter. But yes, we certainly transition into the next year.

Typically, the first quarter is about 100 basis points worse than the fourth quarter. In the first quarter of '22, we had a 70 basis point improvement. So we know we've got some tougher comparisons coming up from both a top line standpoint and an operating ratio standpoint, just given the phenomenal performance that we've had this year. And it's almost 300 basis points improvement in the operating ratio from a year-to-date standpoint.

So it's been an incredibly strong year coming off of the improvement that we made in 2021. I mean the -- had $1.2 billion of revenue growth in, and we put another $900 million year-to-date on top of that. So in a probably a negative GDP environment. So I think we're probably in a stronger position than we've ever been in terms of going through a slower macro environment with respect to the relationships that we had with our customers.

We mentioned earlier, we've not lost any business that we've got to try to go back and regain, if you will. It's just going to be a function of when our customers have more freight to be able to give to us. And so that's encouraging. I've mentioned that I feel like the October trend is encouraging as well. So just be a function of getting through kind of this winter and seeing where that baseline becomes where we finished the fourth quarter of this year from a volume standpoint and then getting through 1Q.

And like I mentioned, seeing if we can't start getting some of that seasonal buildup that we would typically see coming to us early next year. But again, a lot of it in terms of an OR standpoint is it becomes more challenging to get year-over-year improvements in a flattish or a down revenue environment. But like I mentioned before, for us, it's -- we're going to manage all of our variable costs and then just sort of keep investing.

So we might see some loss there on the depreciation line, but that's something that we know once that volume returns to the business. And we say to produce long-term operating ratio improvement takes improvements in density and yield. So once it starts coming back to us, we've proven what we can do in terms of the model. And so getting that throughput through the system, I think we can start working and trying to achieve the long-term operating ratio goal that we laid out at the end of last year of producing a sub-70 annual operating ratio.

[Christian Wetherbee, Citigroup]

Yes. Okay. That makes sense. And then you guys have done historically a good job of outperforming on a tonnage basis relative to peers, both I think in up cycles as well as down cycles. I guess as you think about this one, maybe with -- maybe more of your competitors leaning in from a growth perspective. I don't know if you would agree with that comment first off. But how do you sort of see that relative performance opportunity for you as you go through what could be a softer period over the course of the next year or so?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, a lot of times, our market share has been flatter, if you will, like, again, looking at 2016 and 2019, as recent examples. But for the last 3 quarters, while we've been still producing really solid volume growth, if you back us out at least from the public carrier group, volumes have been negative on a year-over-year basis going back to 4Q of last year. And really just looking at total tonnage, it's kind of on an average basis was flattish pretty much since the first quarter of '21 through second quarter of '22.

So we've certainly significantly increased our market share when you look at the volumes and the revenue trends for us through these last couple of years. But a lot of times, like I said, it's just -- it may be a point where we may get to where we're sort of flattish, if you will, with the group. But right now, it just -- it feels a little bit different. And that's what I mean by we've not lost when I look at our national account reporting talking to customers. There's more conversations about the value add that -- how we help customer supply chains really over these last couple of years as people have dealt with the pandemic and supply chain challenges.

And what we were able to do in '21, in particular, while there were a lot of capacity issues within the industry and to be able to support our customers and their growth and try to keep their networks and supply chain balanced. I think that's gone a long way. We've proven our value proposition. And so that's why I think we're in a better spot than perhaps we've ever been. So whenever we come out of this slower economic environment to really start building on the market share levels that we currently have in place.

So yes, that's kind of what we've seen in the past and certainly where we think we might be, but where we've been flattish, we might still see a little positive delta from a share standpoint through the group. Certainly, we've been in probably 3 straight quarters of negative GDP. And when you compare our volume performance versus the other public carriers at least, there's probably been a wider spread there perhaps in other times in the past.

[Operator]

The next question comes from Amit Mehrotra with Deutsche Bank.

[Amit Mehrotra, Deutsche Bank]

Adam, I don't know if you mentioned this before, but you talked about October being a little bit better. Can you just quantify that for us? Like typically, obviously, what's the historical shipment volume or tonnage role from October, September to October versus what it was? And then less of a nitpicky question. I guess I'm not so worried about Old Dominion's ability to see a positive spread between revenue and cost per shipment. I think you've done it 10 in the last 15 years because obviously, the MASTIO data and the service and you guys are just best in class there. But I guess the question really is the industry's ability to see positive yield ex-fuel growth next year. And some of this is a pricing discipline question for the industry, which I ask every quarter, but I just want to get your perspective in terms of what you think the industry's ability to see yield ex-fuel positive pricing is next year based on everything you're seeing out there from a pricing perspective?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Sure. Yes. One, thank you for recognizing the service performance. And certainly, as we said, service supports yield. You can't go into an account at a renewal. You've had service failures and so forth and have had rolling embargoes and missed pickups, late deliveries, damage shipments, those types of things and to be able to get the consistent increases like we've been able to achieve really going back for many years now. But that is a differentiated quality from us versus the group as well as I think that we look for consistency with our program is not necessarily whose favor is the market today versus tomorrow. We just want to build in a fair approach that tries to create win-win scenarios for us and for our customers.

They know what the -- how to forecast and plan for from an expense standpoint. But more importantly, they can recognize the value, and there's a difference between price and cost. And I think we're increasingly seeing customers recognize that value that we're able to deliver for them. But -- so we certainly will continue with our initiatives, and I can't comment on what the other carriers will be doing and what their strategies will be going forward. But I think that, like I mentioned, the last 3 quarters, the other carriers at least, have been negative from a volume standpoint and have continued to push pricing.

So it's hard to imagine that, that changes. It certainly seems like that's been favorable to their financial results. There's been general improvement and industry dynamics appears. But yes, our yield philosophy has been different from the group for many years, and certainly it's been rewarding for us and has allowed us to do a lot of things in terms of the investment cycle and the dollars that we've been able to put into our system, to keep growing and to have the baseline.

We've probably got 25% excess capacity in the system today. And so we know we're building up from that next big way if the growth comes to us, and we're confident in what our long-term market share capabilities should be and feel like that we can get through the challenges of the short term and softer economic environment. But it's what you do in those upcycles that really make a difference. And so you have a lot of encouraging trends, if you will, for us and just we want to make sure that we stay ahead of the game and have got the capacity, we've got the people and we've got the fleet to be able to take advantage of the next up cycle whenever it starts.

[Amit Mehrotra, Deutsche Bank]

And what about the October versus September data point?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes, sure. From a tonnage standpoint, and again, keep in mind, we typically don't even talk about the details. We just give sort of an average change in the revenue. But just knowing the sensitivity around at this point. But the number will change a little bit as we finish out these final few days of the month. But right now, what we're seeing from a month-to-date standpoint. It looks like that we're going to be pretty much right in line with the normal sequential change for October.

Typically, October decreases about 3.5% sequentially versus September. And we're right in that ballpark. And certainly, it can move around a little bit as we finish out the month. But that's really the first time since February of this year, but the numbers have pretty much been in alignment. So we'll look and see. There's not necessarily a positive catalyst coming, if you will. But if we can kind of keep touch and keep pace with normal sequential trends, the positive catalyst meaning in the economy right now. But if we can kind of keep pace with these normal sequentials as we go through 4Q and 1Q, then we have an idea of what type of buildup we might see sequentially as we start getting into the spring of next year.

[Operator]

The next question comes from Todd Fowler with KeyBanc Capital Markets.

[Todd Fowler, KeyBanc Capital Markets]

So Adam, I think you've touched on this in a couple of different ways on the call here, but I just wanted to kind of square up the comments on the weight per shipment. It was up in the third quarter. It sounds like it's still trending positive. But your comments about customers seeing less demand, I would think that, that would have some impact where there just be less freight on each pallet. So can you just talk a little bit about the mix and what's been going on with weight per shipment? It seems like it's in the kind of a normalized level, but just want to make sure that that's the right way to think about it right now.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes. It -- from a sequential standpoint, it decreased about 10 pounds from the second quarter to the third quarter. And right now in October, it's pretty much about the same as where we were right around 1,560 pounds, if you will. And so yes, if that trend held through the fourth quarter, then we would be looking at a decrease. We took action last year in terms of getting some of the heavier weighted shipments out of our system. Some of those spot quote systems shipments as well. Those spot quote of the total of our business have decreased as a result of what we're doing last year, really in an effort to protect capacity for our existing LTL customers and make sure that we can deliver what they needed.

And -- but we started seeing an increase sequentially in the fourth quarter of '21 versus that low watermark that we hit in 3Q. So it went from 1,538 pounds up to 1,575 in 4Q and then increase further in the first quarter of this year to 1,589. And then since that point, it's been declining a bit. But yes, I mean that supporting last year was such a strong fourth quarter in terms of -- we ended up with an increase in our tons per day. It's typically down about 1.5% and we were actually up almost 2.5% sequentially versus the third quarter. So that strength as we went through 4Q was why we had such high expectations coming into this year, and it's just been sort of this flattish environment, if you will, from a volume standpoint all year. But yes, that's kind of what we've been seeing from a weight per shipment standpoint.

[Todd Fowler, KeyBanc Capital Markets]

Okay. No, that sounds -- I mean, tonnage being down a little bit the weight per shipment holding in, it seems like a decent combination all things considered. Just for a follow-up, I'm curious if you have any comments on headcount, it was down sequentially I guess is that's probably letting a little bit of attrition kind of run its course, and I don't think the fourth quarter is a big hiring period. But how should we think about the cadence of headcount either sequentially or year-over-year, just given the demand trends?

[Greg Gantt, President, CEO & Director]

Todd, I think you'll continue to see that trend track our shipments. Right now, like you said, we've been simply letting attrition take care of our needs or move it back in the right direction. But -- and we would continue to do that through the first quarter, which is typically our slowest quarter. But we aren't really hiring other filling vacancies and whatnot, but not much going on from that standpoint at this point in time.

[Todd Fowler, KeyBanc Capital Markets]

Got it. So you've got a little bit of a glide path for the next couple of quarters just on the attrition front.

[Greg Gantt, President, CEO & Director]

Yes, I think so. But keep in mind, we've continued to have driving schools and continue to work those and continue to get drivers trained because we know this thing will change at some point in time, and we'll come out on the other side in a better position certainly from -- I think, from a driver standpoint and certainly from a capacity standpoint. So I think we're doing some of the right things today to set the stage for when times do recover and get better and as has been in the past in our business, you know that time will come, hopefully, sooner than later.

[Operator]

The next question comes from Ravi Shanker with Morgan Stanley.

[Ravi Shanker, Morgan Stanley]

Adam, I just wanted to follow up on some of the tonnage commentary already. Specifically, if we were to take a little bit of a glass half full approach here, I think you said in the start of the call that you kind of underperformed on share for like 3 to 4 quarters and already 3 quarters into it, if you historically look at like your tonnage stays negative for like 2 or 3 months maximum and you're already kind of pretty much all the way into that. You did say that you don't think that there is a positive catalyst on the horizon. But what are you looking for any potential signs of the cycle may be turning and we may be kind of in a restock kind of uptick position maybe in the next couple of months.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, I mean, the biggest thing is just the conversations that we've had with customers. Like I said earlier, I think that there's just so much uncertainty in the market today. And that just gets in the psyche of business owners in terms of the risk that they're going to take for capital. I think there's still a labor issue and supply chain issue that is impacting many customers today. And we've heard first hand that just given the uncertainty out there with the economy that some customers have made the decision to not be as aggressive to feel open positions from a labor standpoint for fear of what may come on the demand side for their business.

But I think that we certainly -- when you think about there's 3 big layers of uncertainty that people are facing right now, the upcoming midterm elections. And then after that, you've got clarity at least for the next couple of years. But then comes to the energy issue that it's got to be dealt with. We've got to see some type of improvement overall in terms of where fuel prices are and the impact that has on overall inflation for the domestic economy. And I think that if that riddle get solved, then you get some clarity in terms of the interest rate environment.

And so I think we've got to start knocking some of those down to get back into a growth type of mode. But even when we look back at prior periods, be it even looking as bad as 2009 was, we started getting growth and the sequential growth that is in the spring of that year. So we had a really bad 4Q '08 and 1Q from a sequential standpoint, like many businesses did. But looking at 2016, another slower environment, same kind of thing where the fourth quarter of '15, things are slowing down. We kind of went through the winter. We started getting build up back in the spring. At some point, people have got to get some inventory back in the system and now there's been a lot of conversation about inventories. But frankly, we continue to face issues in terms of getting parts.

Many of our customers give us the same feedback that they don't have the right levels of the inventories in the right places. So that creates freight demand. And we still look at an inventory to sales ratio that's lower than pre-pandemic levels. So I think there's certainly a lot of factors that have got to be dealt with, but just having those conversations with customers and our sales team is doing that on a day in and day out basis.

We're trying to figure out what their plans are going into next year, and we take those from each of our sales account representatives, each of our service center imagers at our 255 locations and tried to build that into somewhat a baseline forecast plan to build around from an equipment planning standpoint, headcount planning, service center capacity plan.

But that's the best feedback. You can read all the economic reports in the world, but the best is feedback we get from the ground up to help us plan for our business.

[Ravi Shanker, Morgan Stanley]

Great. And maybe as a quick follow-up. I apologize if I missed this and you said it, but are you seeing any signs of TL players kind of trying to encroach into the LTL market kind of given how loose things are on the TL side?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Not really. And the reason for that is where that may come into play and has in the past, say, back in a 2018 time frame would be on some of those spot quote-type shipments. Before the strategic actions that we took last year spot quote shipments are like 8,000 to 10,000 pound type loads. And historically, 10,000 pounds somewhat defined the LTL industry. But those heavier shipments, you might have a truckload carrier come in and try to build multiple stops or just be willing to take 1 mode, if you will, and not with that spillover type of freight.

But the actions that we took last year were designed to try to get some of that freight that wouldn't be as sticky proactively out of our system. And so as a result, those spot quote shipments that used to average maybe 5% of our total, so a small number overall. It's probably more like 1% to 2% at this point. So we were fortunate that we proactively tried to flush some of that out of the network, really designed us to make sure that we were protecting our consistent LTL shippers and the capacity means that they had, in particular last year and what we thought was going to transpire this year as well.

But I don't think looking at some of our competitors wait for shipments that I think some other companies took a similar approach. I don't think that's as big of a kind of a challenge to work through the past. There's -- that freight would swing back into truckload. It creates somewhat a vacuum effect that other carriers would look to feel. I don't think that risk is out there as much as it has been in prior cycles.

[Operator]

The next question comes from Bascome Majors with Susquehanna.

[Bascome Majors, Susquehanna]

Following up on Todd's headcount question. If I look at your shipments per employee, they're still, call it, 8% below where they were this quarter in 2019. Can you talk a little bit about maybe a more bottoms-up look at productivity and your own metrics? How does productivity compare to history on the dock right now? How does the driver productivity compare? And just -- is there an opportunity in some of these tops-down metrics that we can calculate to get back to historic levels in a weaker demand environment? Or does it make sense to stay a little long head count in a structurally tighter labor market?

[Greg Gantt, President, CEO & Director]

Yes. I'll answer the last part of your question first, Bascome, but I think it definitely does make sense to stay a little long from a labor standpoint because -- we -- as we've talked about on prior calls, we had to work on an awful lot of harbor in the recent past to ramp up from a driver standpoint, particularly that we have in over the years. It's just much more difficult on like the market, was a heck of a lot tighter, and we did work an awful lot harder than we always had in years before to ramp up. So for sure, we will be a little more diligent on trying to maintain that driver force and keep it as high a level as we possibly can without negatively affecting productivity.

To go back to the general productivity question. We're starting to see some improvements from market improvement on the platform, which is a good thing, and it's pretty typical when we get in this environment. Our labor force becomes better trained and more experienced, and we start to see the positive improvement cause change. And we are seeing that now. So that's certainly a good thing.

Certainly, we struggle a little bit on the P&D side, the pickup and delivery side because we're obviously just not picking up the same number of shipments that at each stop that we were doing when we were ready to buy. So that's certainly more of a challenge. Your miles between stops and that kind of thing become a little greater and is certainly more difficult to keep up from that standpoint. So obviously, we'll continue to focus on those.

We always think we have room for improvement both P&D and platform and from a load factor standpoint. So we're continuing to stay laser-focused on those kind of things and continue to try to drive some cost out when we can and where we can.

[Operator]

The next question comes from Bruce Chan with Stifel.

[Unidentified Analyst]

This is Matt on for Bruce. Curious to get your current view on net capacity in the industry and maybe how you might expect it to trend over the next couple of years here.

[Greg Gantt, President, CEO & Director]

Well, certainly, I think in this type of environment, there's certainly capacity out there much more so than it was last year back in the mid-2021 and prior. But I think we were the only one that maybe wasn't really suffering from a capacity standpoint. Certainly, we were in better shape than most. And as Adam had mentioned before, we spend an awful lot of money to ramp up from capacity. And I think we've done an extremely good job of that. We continue to stay focused on building capacity. And like I mentioned before, we'll come out of this thing hopefully sooner than later, and we'll be in good shape. But I think there is some capacity obviously out there now. We don't see the same things going on this year that we did last year when carriers were in trouble, they set in bargains and various things to limit pickups and whatnot. And certainly, we're not seeing or hearing about those kind of things now.

So yes, there's capacity obviously. But I think the question is, what's everybody doing to try to ramp up the need arises on the other side. And you know what we're doing. We've got a large number of capacity increasing projects underway now, and we'll keep working on those. And again, like I said, be in better shape when volumes do change and when we start to pick back up. So we feel good about where we are. And honestly, what the others do, they do. And we can't -- certainly, can't control that.

[Unidentified Analyst]

Great. Lastly, are you guys seeing any changes or differences in underlying demand by specific end market or geography?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

No. We've probably seen a little bit better performance with our industrial-related accounts once again in the most recent quarter. It probably grew a couple of hundred basis points faster than the overall company average revenue growth rate. And on the retail side, it was probably a couple of hundred basis points below but overall still seeing growth in all segments, if you will, but there's probably a little bit better performance on the industrial side.

And most of our regions, you got some growing a little bit more than others when we look at it. But most are saying fairly balanced, which is a good thing. It's helped us be able to effectively reduce our purchase transportation, which was a positive for the third quarter were effectively back to prepandemic levels in the sense that we're essentially fully insourced again, and that's where we wanted to be because we know that improves our service value overall. And so that's been a positive trend, if you will. But if you don't have somewhat consistent growth in all those regions, you can get a little bit out of balance, and we might not have been able to achieve that objective. So that's been a positive development, at least to help from a service and a cost standpoint.

[Unidentified Analyst]

That's super helpful. Congratulations again on the exceptional performance.

[Operator]

The next question comes from Todd Wadewitz with UBS.

[Thomas Wadewitz, UBS]

Yes. It's Tom Wadewitz. Just -- I think, Adam, you gave quite a bit of commentary on September, October, but I don't know if you offered what the revenue per hundredweight was kind of trending in October ex fuel. Can you give us kind of a sense of that? Is that kind of stable? Or where is that at?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes, pretty stable. Tom, I didn't give a specific number, so to speak, but I just mentioned that it's right in line, maybe a little bit better than what we saw the average for the third quarter. We were up 7.2%, the revenue per hundredweight in the third quarter, excluding fuel surcharge and right about that same level in October.

[Thomas Wadewitz, UBS]

So do you think that, that's kind of the level you stabilize at? I mean, I guess you talked about inflation being maybe a bit more stickier, higher than you thought. I think we normally think of maybe 4% to 5% as being what's a normal growth in revenue per hundredweight to get a bit more than inflation. But I guess if you're running with higher inflation, you got to get more price, right? So you think that's the right level? Or do you think that in a weaker -- kind of a weak rate market, you're going to see that decelerate a bit further as you go into 2023?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

No, I think that when you look at our long-term revenue per shipment performance, so a little bit different than the per 100. But long-term revenue per shipment, we've been able to average between 4.5% to 5%. And that's -- I think whether you look at it in certain years, including fuel or excluding fuel, that's kind of been the goal because long term, our cost per shipment performance has been kind of in that 3% to 3.5% range mainly the increase is that we give to our employees each year from the wage improvement. But we certainly -- we've face the increased cost of equipment and insurance premiums and fortunately have been able to offset some of those other inflationary items through improved productivity and efficiencies within our operations. But we're certainly -- we'll have the same objectives as we go through the rest of this fourth quarter and as we transition into next year as well.

Looking at the per hundred, certainly, we had bigger increases in 2021. Some of that started particularly in the back half of the year when inflation was picking up, and this year has been solid increases as well. But the key is just this contracts renewed and they renewed throughout the year for us is to continue to make improvement. So it's -- we work a continuous improvement cycle, whether it's with our yield management, the efficiency of their operations. Every department is looking at continuous improvement. And certainly, we've got to continue with our best efforts there on the yield side. But I think that we'll see core inflation.

We certainly hope that, that moderates as we transition into next year. So we shouldn't need as big of an increase perhaps as what we've seen the last two. But certainly, we want to see sequential increases from quarter-to-quarter.

[Operator]

The next question comes from Jon Chappell with Evercore ISI.

[Jonathan Chappell, Evercore ISI]

Adam, just two quick follow-ups for you. First, on the PT brought it up and then answer a couple of questions ago, 2.1% as far as I can tell, is about as low as it's ever been in your network. So as you contemplate keeping maybe more resources from a headcount perspective just because of the challenges in hiring. Is there any more room to flex PT? Or are you kind of at the absolute minimum there? And we think about it holistically, salaries, wages and benefits plus PT probably stays a little bit elevated for the foreseeable future.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes, that level where we are, we effectively in the third quarter, didn't use any PT within our domestic line haul network. That balance that we've historically had that generally trends between 2% to 2.5% of revenue reflects mainly our -- as we have a little small truckload brokerage operation. So you've got those carrier costs there and then the partners that we have with our Canadian operation as well. Those purchase transportation costs are in that baseline number. So certainly, I wouldn't necessarily expect that to get much lower as a percent of revenue, unless something is changing with those businesses, which we don't foresee. But they get nothing really out there to call, if you will, as it impacts the domestic operation.

We certainly flexed up as we went through the balance of 2021 primarily using that PT to supplement our workforce and to a degree, our fleet where some of what I mentioned earlier, we had some regions that were growing much stronger, like coming off the rest as we came out of pandemic was growing incredibly strong and can get your fleet out of balance, if you don't appropriately manage. So that was some of why we were using a little bit of PT as well. It's just to keep the network overall in balance.

[Jonathan Chappell, Evercore ISI]

Okay. That helps. And then also to tie a couple of things together. I mean, it sounded like you're pretty optimistic. I mean maybe optimistic is a strong word, but not as pessimistic regarding some of your customer commentary. But in your prepared remarks, I wrote down you said directly, demand just isn't there for some of your customers' freight. So do we foresee maybe a late peak season where it's not there today. But going into a time that might seasonally be slower, you start to see a reversion or a catch-up? Or do we kind of just write off the rest of this year as it's going to be weak and maybe things are rightsized by '23 and start to see a pickup then?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes. For us, we don't have a peak season per se. Usually, September is our busiest month of the year just from a function of the seasonality in our business. And we have pretty consistent seasonal trends year in and year out as we progress, whether it's week-by-week within the months and then month-by-month through the quarters. But nevertheless, I mean, certainly, some of the months that we had in the earlier part of the year coming off the strength of how we finish '21. And it looks like March will be our busiest month in terms of just the average weight and shipments, if you will.

But yes, it's just managing through kind of the base levels where we are. Looking at, I mentioned earlier that when we get -- whether it's an up cycle or a down cycle, a lot of times will have 3 to 5 quarters where we either outperform or underperform normal seasonality. And so the third quarter was the third such quarter of underperformance. So we'll just continue to watch the trends, like I mentioned, what we've seen at least through the second and third quarters was just in the months where we see a lot of buildup. We didn't see that same type of acceleration.

September, for example, that would normally be up sequentially about 4%, we were up about 0.5%. So will we get the buildup in November? Remains to be seen, and then December kind of drops off. But I feel like if we can kind of somewhat say a little bit closer in touch with our normal sequential trends, through 4Q and 1Q next year, that's kind of looking at getting to the spring and seeing when we start seeing some volumes coming back to the business. 2Q of this year, it's quite a bit different. We're used to seeing volumes increase sequentially about 7.5% from the first quarter to the second quarter, and we were up about 0.7%. So we just haven't had that buildup that we otherwise would see. But yes, it's just going to be a function of kind of getting through and watching these developments. But October generally sets the trend when we look back for the fourth quarter and look back at some prior periods where we were kind of in or going into an economic slowdown, you've had a lot more underperformance, if you will, with October versus September. So that was something that we've been closely watching internally makes us feel a little bit better as we really get into the winter months where we're always going to be a little bit seasonally slower.

So it's just a function of continuing to execute on the plan and adjusting as need be to what the overall volume environment dictates. And then just trying to stay engaged with our customers and figure out we would really see that spring build up next year or not. And then all the while, we're probably focusing a little bit more on sequential trends now. Certainly, again, from a year-over-year standpoint, the fourth quarter was so strong. We kind of knew the fourth quarter and the first quarter from a year-over-year standpoint, we're going to need much harder comparisons on the volume side. So that's why we're probably paying a little bit closer attention now to how some of the seasonality has played out for us.

[Operator]

The next question comes from Jason Seidl with Cowen.

[Jason Seidl, Cowen and Company]

Just one question for me, and it's sort of been asked in different ways, but how should we think about the industry's continued ability to gain pricing above cost inflation with many larger LTL carriers sort of expanding capacity into a downturn? Is that something we should be concerned about? Or is the fact that we're seeing so much cost inflation across to everybody's network that we should remain confident that everyone is going to maintain pricing discipline that we've seen over the last decade.

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Yes. Well, we've certainly -- like I mentioned, we've -- the carrier group on average to exclude us has seen negative volumes on a year-over-year basis through the last 3 quarters. And -- but has continued to increase their yields. And so we wouldn't anticipate a lot of change from that.

With respect to whether capacity is really being added or not remains to be seen. We've not seen really any material addition. Some people are talking about it. There have been 1 other carrier, I guess, that certainly has increased their service in account. But when you look at the industry, at least the public carriers on average over the last 10 years, there has been a decrease in industry capacity. So don't really foresee a lot of change in that regard as we move forward. But certainly, we'll continue to watch it. But yes, we believe the industry will stay disciplined, but we know what our plan is, what we can control, and we'll continue to control the elements that we can and what the other carriers do will just continue to sort of watch and see.

But I think we've got a long-term track record in terms of what we've been able to do over the last 10 years. We've averaged growing our revenue 11% a year, and we certainly have made improvements to the operating ratio along the way. And again, it's been through a combination of consistent improvements in yield and then the density through that -- the volume throughput in the system that's allowed us to produce this consistent operating ratio improvement and different carriers have had different strategies along the way. And certainly recent periods, other carriers have been increasing rates faster than us, but we don't control what they do, but we'll continue to certainly watch.

But our conversations with customers are what's going on within Old Dominion, what our cost inflation looks like, the investments that we want to make to help support our customers and the growth in their business. And ultimately, what's the value that we can add to our customer supply chains. And those are the conversations we have versus trying to compare our price versus someone else's price. It's all about value, and that's service value is what has won the day for us and what will continue to drive our ability to win market share in the long term.

[Jason Seidl, Cowen and Company]

Well, clearly, your game plan has worked. So I think sticking with it is a good thing.

[Operator]

The next question comes from Ken Hoexter with Bank of America.

[Kenneth Hoexter, Bank of America Merrill Lynch]

Just Adam, just to balance out your last comment there. your 100 basis point revenue over cost you noted before, but also noting higher inflation. I just want to understand, you still target the kind of 50 to 100 basis point operating ratio improvement on a full year going forward? Or does that change if volumes are weaker here?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, I think we talked a little bit about this earlier, certainly in periods where revenue has been flat or been down. We've had a little bit of OR degradation and generally limited to the depreciation cost as a percent of revenue. And the reason for that is we want to continue to invest for the long-term market share opportunities, we believe we have. And certainly, when you look at the second quarter of 2020, we had a big decrease in revenue that year. But we were a lot more aggressive in terms of managing costs and actually improve the operating ratio of 10 basis points. But I think that looking more a 2016, 2019 for the general performance and doing some of the things that really protect our long-term opportunities, keeping a little bit of inflated headcount, like Greg mentioned earlier, continue with our investment cycle.

Those are the types of long-term decisions that we want to make that improve our opportunities for out years to get prepared for maybe what a 2024, 2025 looks like versus just trying to focus too closely on the short term and what the first half of next year might otherwise look like.

So certainly, a lot of it depends on the overall revenue environment and what we will see. There's a lot of uncertainty out there, but 2016 and 2019 are probably better examples to look at in terms of how we try to manage the business, manage all over variable cost flat as best we can or prevent any type of increase in deterioration there and those cost elements. And then just might see that those depreciation costs increasing as a percent of revenue because of the investment driving increased depreciation dollars and then you're denominated being potentially flat to down from a revenue standpoint.

[Kenneth Hoexter, Bank of America Merrill Lynch]

And then the percent of volume, you mentioned from the spot boards, but how about from the third-party carriers, brokers, does that shift in this kind of a market when things get softer, do you add more? Do you keep it steady? How do you think about that strategically?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, I mean we've got good long-term relationships with many 3PLs. They're about 1/3 of our business overall. A lot of times, what you'll see in a slower macro environment. We're seeing this a little bit now is some of those levels that's 3PL driven that kind of flattened out a little bit. And so we'll continue to watch that, but certainly feel like that a lot of the big 3PL customers that we have, in some ways, can help us a sense of demonstrating the value independently to the shippers that they're potentially helping manage transportation services for and talking through what the different elements of value in terms of our superior service on time, pickups, on-time deliveries, load damages all those sorts of things that they're talking to someone that has just been solely focused on price in the past, they can help us talk more about value. So in some ways, that could be beneficial to us in a slower macro environment.

[Kenneth Hoexter, Bank of America Merrill Lynch]

So are you seeing that increase as a percentage? Or is it sticking -- does it just stick around that third level up and down in the market? Or are you already seeing a change?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

No, it's remaining about 1/3. It's just -- the growth is flattening out a little bit with -- in terms of looking at the overall revenue with our 3PLs right now.

[Kenneth Hoexter, Bank of America Merrill Lynch]

And then last for me is the fuel. It seemed relatively neutral this quarter in terms of kind of a quarterly impact, I guess, versus a huge lag impact last quarter. Does that math sound right to you? And then our -- in your negotiations? Are customers kind of talking. I mean I know you keep raising your rates, but the customers push back even harder now? Are you -- is it a bigger struggle as you go through these negotiations given the volume environment?

[Adam Satterfield, SVP, Finance, CFO & Assistant Secretary]

Well, no. There's always a conversation about total all-in price, if you will, because that's ultimately the bill that the customer is paying. But for us, certainly, there was a slight decrease in the average price of fuel in the third quarter versus the second. So that's something we'll probably talk a little bit about or on the last call. But like I mentioned earlier, we hope that we see that continue to decrease. And I would just say looking at the impact, there's been a lot of questions about that. If we were to see a decrease in the impact of fuel surcharge and our philosophy is we want the fuel surcharge is just one element of pricing and whether fuel goes up or down, we hope that's neutral to the bottom line for us. And probably the best periods to go back and look if we are to get some type of material improvement in fuel prices 2015, the average price of diesel fuel was down about 30% that year. We were fortunate that we still had some volume growth going that year to help us have good revenue trends overall, and we were able to improve the operating ratio.

The fuel dropped another 15% in 2016. That year was a little bit different in terms of the overall top line environment and a little bit more pressure from a volume standpoint. But we certainly would like to see overall the fuel price continue to drop. And certainly, that would decrease the all-in price that is being paid today.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Gantt for any closing remarks.

[Greg Gantt, President, CEO & Director]

We thank you all for your participation today. We appreciate your questions, and please feel free to give us a call if you have anything further. Thanks, and have a great day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.