Forward Air Corporation (NASDAQ:FWRD) Q3 2023 Earnings Call Transcript

Operator: We’ll now move along to the line of Stephanie Moore with Jefferies Group.

Stephanie Moore : Hi, good morning. I wanted to maybe follow up on — I’d like to follow up on a point you just made, Tom, in your comment about how domestic forwarders are using more — kind of using more of your service in the last couple of months. It seems like the underlying freight environment is still pretty weak and the forwarding environment is still pretty weak. So what do you think is driving maybe the stepped-up engagement?

Tom Schmitt: Yes. So we all — if you look at the entire industry, and that’s definitely true to a smaller extent for us also, we did have temporary dislocations. The first one was obviously yellow capacity that went temporarily out of the market, 9% of the doors. Obviously, those shipments still have to be moved and they went to other providers. You saw some of the first-class rate companies reporting, I would bet you that some of them like Siah would have had quite a bit of what otherwise in the past, would have been a yellow business. We had some of that, too, less than the others because the freight mix — freight overlap between yellow and us is perhaps less fully developed as it was between the yellow and some of the other first-class class freight companies.

So — and then as this obviously had an unfortunate and we are very familiar with that because we lived through a cyber-attack ourselves in 2020 incident on cybersecurity. That also temporarily, I think, shifted some volumes. Having said all of that, if I look at specifically September and as I look at October, it seems like on the high-value LTL freight side. This is less consumer discretionary, more industrial. There is actually a bit more momentum in the demand that we are seeing. When we talk with our business partners, Yes, imports from Asia are still muted, but the LTL environment clearly is better than it was towards the end of Q4 last year, Q1 this year, Q2 this year. So there’s a bit of a spring in the step for the Forward industry from the yellow and the [esters] temporary dislocation, but the trends overall are more sound right now.

I still am not high-fiving myself here for a huge peak, but this is a better LTL environment right now than it was 3 months ago or 6 months ago.

Stephanie Moore : So maybe just following up on that. Is it — would it be reasonable to say that with the dislocation from Yellow that maybe some of this high-value freight that 6 months ago, the likes of your public LTL — the life of the other LTL players the size and ODs, maybe they would have moved some of this high-value freight. But now given the tighter capacity environment, they kind of were giving some of that freight back to you guys? Is that a fair assessment or no?

Tom Schmitt: I wish they were that generous, but I think they know better than that. No. So that’s why I said before, I do believe the Yellow dislocation helped the industry on pricing discipline all up, but it also helped some of the players with gaining new volumes, we did get some volumes through our intermediaries for long-haul yellow business and also some of the events business. But we were clearly, from a pure volume perspective, less of beneficiary than some of the class rate companies were. And I do not have the impression that a ripple effect where yellow business went to Old Dominion and their high-end business went to us. I do believe domestic forwarders, frankly, are just gaining more business, getting more business and when they compete with us as part of the contest, they’re just — the win rates are going up.

So I do see a better LTL environment going into the fourth quarter. Again, the reason why the numbers look probably somewhat muted or conservative is us being very much aware that we need to figure out the pricing and volume sweet spot for door-to-door and direct the same way we have worked on that many, many years on the Airport-to-airport side.