Yellow Corporation (YELL) CEO Darren Hawkins on Q2 2021 Results - Earnings Call Transcript

Yellow Corporation (YELL) Q2 2021 Earnings Conference Call August 4, 2021 5:00 PM ET

Company Participants

Tony Carreño - Vice President, Investor Relations

Darren Hawkins - Chief Executive Officer

Dan Olivier - Interim Chief Financial Officer

Darrel Harris - President

Conference Call Participants

Jack Atkins - Stephens

Scott Group - Wolfe Research

Jeff Kauffman - Vertical Research Partners

Bruce Chan - Stifel

Operator

Good afternoon, everyone and welcome to the Yellow Corporation Second Quarter 2021 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Tony Carreño, Vice President of Investor Relations. Please go ahead.

Tony Carreño

Thank you, operator and good afternoon everyone. Welcome to Yellow Corporation’s second quarter 2021 earnings conference call. Joining us on the call today are Darren Hawkins, Chief Executive Officer; Dan Olivier, Interim Chief Financial Officer; and Darrel Harris, President.

During this call, we may make some forward-looking statements within the meaning of federal securities law. These forward-looking statements and all other statements that might be made on this call, which are not historical facts, are subject to uncertainty and a number of risks and therefore actual results may differ materially. Format of this call does not allow us to fully discuss all of the risk factors. For a full discussion of the risk factors that could cause the results to differ, please refer to this afternoon’s earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q. These items are also available on our website at myyellow.com. Additionally, please see today’s release for a reconciliation of net loss to adjusted EBITDA. In conjunction with today’s earnings release, we issued a presentation which maybe referenced during the call. The presentation was filed in an 8-K, along with the earnings release and is available on our website.

I will now turn the call over to Darren.

Darren Hawkins

Thanks, Tony and good afternoon everyone. Thank you for joining our call. Today, we reported Q2 2021 adjusted EBITDA of $82.9 million, a $69.7 million improvement compared to Q1 of this year and an increase of $45 million compared to a year ago. I am pleased with the execution of our yield strategy and the steps we are taking to mitigate higher purchase transportation expense. As we look ahead, we expect a steady staircase of improvement.

Demand for LTL capacity has remained strong driven by e-commerce and a recovering manufacturing sector that has yet to return to full strength. As the U.S. supply chain struggles to keep up, much of the growing demand is in the middle-mile segment, which is ideal for LTL carriers due to the shorter length of haul and more appealing lifestyle for LTL drivers, most of whom are able to be at home with their families each night. With the growth of e-commerce requiring warehouses near major population centers, the need for middle-mile service is positioned to remain strong. On the supply side of the equation, trucking capacity is being kept in check by an industry-wide shortage of qualified drivers and dock workers. We are working diligently to meet our customers’ needs, while making sure the optimum level of freight is flowing through our network. In such a tight capacity market, it is also imperative to ensure pricing reflects the demand for the service we provide.

Our strategy is to grow the business. However, in the near-term, we are leaning into yield growth over tonnage growth to help manage through the industry-wide shortage of drivers and near-term purchase transportation headwinds. Favorable year-over-year pricing trends have carried into Q3. For the month of July, Yellow averaged between 11% and 12% on contract negotiations. We are executing key steps in our transformation to One Yellow.

During the second quarter, Reddaway’s bargaining unit employees voted to enter into the National Master Freight Agreement, joining the rest of our operating companies. All of our bargaining union employees are now aligned with the NMFA’s March 2024 expiration, a single operating system across the network as the technology lynchpin to get to One Yellow. YRC Freight and New Penn are now operating on the One Yellow platform with the Reddaway conversion in process and targeted to be completed by the end of the year. This will set the stage for a fully integrated One Yellow network and streamline the flow of information for operations, sales, customer service, human resources, maintenance and in-cab technology.

We are also making significant progress on our 2021 capital expenditures plan with the acquisition of more than 1,800 tractors, 2,200 trailers, and 400 containers during the first half of the year. Not only are these investments having a positive impact on the age of our fleet, but over time we expect them to mitigate maintenance expense and help our sustainability efforts through enhanced safety and improved fuel efficiency. As we onboard the new equipment, it is being branded with the Yellow name in conjunction with our transformation. We have also re-branded over 10,000 pieces of existing equipment with the Yellow brand.

Turning to the American Rescue Plan Act of 2021, it was signed into law earlier this year to strengthen eligible multi-employer pension plans that are severely underfunded and to substantially mitigate their unfunded liabilities through 2051. The 120-day rulemaking period concluded in July and the PBGC issued interim final regulations. The regulations provide pension plans guidance on the application process along with the timeline through 2023 on when they can apply primarily dependent upon their funded status. The Act and the relief it provides will protect the hard earned benefits of retirees from many companies and many industries, including members of the Yellow team.

I will now turn the call over to Dan who will share additional details about the quarter.

Dan Olivier

Thank you, Darren. Good afternoon, everyone. For second quarter 2021, operating revenue was $1.31 billion compared to $1.02 billion in 2020. Operating income was $27 million compared to an operating loss of $4.6 million in the prior year, which included a $6 million net gain on property sales. Adjusted EBITDA for the second quarter 2021 was $82.9 million compared to $37.9 million in the second quarter of 2020. Adjusted EBITDA for the last 12 months was $215 million as of the end of the second quarter. And as a result of having crossed over $200 million in LTM adjusted EBITDA, we are no longer required to maintain a minimum $125 million of liquidity.

Our revenue for the second quarter reflected year-over-year LTL tonnage per day growth of 8.3% and LTL weight per shipment was down 0.4%. Sequential LTL tonnage per day trends compared to the prior year, were as follows: April, up 23.7%; May, up 8.9%; and June, down 3.3%. On a preliminary basis, July LTL tonnage per workday was down between 5% and 6%. Including fuel surcharge, second quarter LTL revenue per hundredweight, was up 16.2% and LTL revenue per shipment was up 15.8% compared to the prior year. Excluding fuel surcharge, LTL revenue per hundredweight was up 12% and LTL revenue per shipment was up 11.6%.

Total liquidity at the end of the second quarter was $423 million compared to $303 million at the end of the second quarter 2020. And total capital expenditures for the second quarter were $144 million compared to $12 million a year ago. Driven by our strong liquidity position, we are narrowing our 2021 capital expenditures guidance from a range of $450 million to $550 million to a range of $480 million to $530 million. In addition to the more than 1,800 tractors and 2,200 trailers added through June, we expect to add an additional 300 plus tractors and 400 plus trailers by the end of the third quarter.

Next, a brief update on U.S. Treasury tranche B loan. As of the end of the second quarter, we had drawn down $381 million. And in July, we received the remaining $19 million. All $400 million of the tranche B loan has now been drawn. Finally, our near-term focus on prioritizing yield over volume, along with the execution of targeted pricing strategies to mitigate our highest cost purchase transportation expenses, were key to our improved performance in Q2. PT expenses were still elevated due to strong demand and tight capacity. However, we reduced PT as a percentage of revenue from 16.7% in Q1 to 16.0% in Q2 and we expect continued improvement in the back half of the year.

With that, I will turn the call over to Darrel.

Darrel Harris

Thank you, Dan and good afternoon everyone. During last quarter’s earnings call, I shared my initial priorities as the new President of Yellow. With my first full quarter in this role behind me, I would like to provide some additional color and an update on these priorities.

The first priority is to consistently meet our customers’ expectations. While we are not where I expect us to ultimately be on a consistent basis, by executing our yield strategy, we are carefully managing the volume of freight in our network. This allows the network to operate more efficiently, particularly in high volume lanes. As we complete the optimization of our network on our journey to One Yellow, I am confident that we will be in position to grow the volume running through the network while meeting our customers’ expectations. Transforming such a large company does not happen overnight, but I am pleased that our company and dedicated employees were recognized recently with multiple Carrier of the Year awards from customers, including Walmart and DHL.

The second priority is to successfully execute our hiring and retention strategies. We continue to focus on a multi-pronged approach in this area. Our Driver Academy site expansion is well underway. We currently have 16 fixed locations across the U.S. with additional mobile academies that can support targeted hiring efforts. Applicants into the program have more than doubled in the past quarter. We are committed to growing our own safe drivers both now and into the future. In addition, our recruitment strategies continue to evolve as we have bolstered our staff and advertising spend to support demand.

The third priority is to complete the enterprise transformation to One Yellow as planned in 2022. As we continue our journey to One Yellow, we are laying the groundwork for success by strategically aligning our teams, optimizing the network and moving all brands to one technology platform. We will enhance our service by getting faster, creating more next day lanes and offering regional services in new locations. When the journey is complete, we will go to market as One Yellow, a super regional carrier, laser-focused on meeting the needs of our customers and growing our business.

As we had previously indicated, during the first half of the year, we expected higher purchase transportation expense due to the necessary use of local cartage and over-the-road purchase transportation, both of which are more expensive in such a tight capacity environment. Our yield strategy is helping us manage these headwinds and we have taken actions to reduce purchase transportation and short-term rental expenses going forward. These actions include purging the network of short-term rentals as we acquired new equipment and adjusting our line-haul network to minimize the use of more expensive purchase transportation in certain lanes. As you heard from Dan, we expect to see improvement in this area as we move forward.

In closing, I am proud of our employees and the progress we are making. It takes determination and grit to transform a company while also meeting the needs of our customers in such a strong freight environment. Plenty of work and opportunities are ahead of us, and our team of dedicated freight professionals, are committed to delivering on the vision of One Yellow.

I will now turn the call back over to Darren for some closing comments.

Darren Hawkins

Thank you, Darrel. During Q2, we executed our yield strategy, and I am encouraged by what we see ahead of us in terms of ongoing LTL freight demand and our ability to improve the company and its financial results. With our journey to One Yellow progressing as expected and the tremendous amount of revenue equipment we are acquiring, my expectations for our team and for Yellow remain high. I am confident the company will continue showing progress and that we are well-positioned for the future. I am also thankful for the dedication of our employees and the continued loyalty of our customers as we manage through the constraints of the North American supply chain.

Thanks for your time this afternoon. We would now be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] I would like to introduce the first questioner for today, and that will be Jack Atkins with Stephens. Please go ahead.

Jack Atkins

Okay, great. Good afternoon and congratulations on good progress here in this quarter, guys. So Dan, if I could maybe start with you. You referenced, I guess, July tonnage down 5% to 6%. Was that on LTL-rated freight? If you could maybe provide a total tonnage per day for July, that would be helpful. And then also an update on just the monthly progression, I think for June, if you could provide that as well, that would be helpful.

Dan Olivier

Yes. Sure, Jack. Thanks. To answer the first question, yes, that was just on LTL tonnage per day, but that’s materially in line with our total as well.

Jack Atkins

Okay.

Dan Olivier

And then historically, tonnage per day from Q1 to Q2 increases between 5% and 6%. And of course, this year, as a result of executing our yield strategy sequential tonnage per day was only up around 1%. As I mentioned in my prepared remarks, a year-over-year basis, July tonnage per day was down between 5% and 6%. On a sequential basis from June to July, tonnage per day was down between 2% and 3%, which is really in line with our historical average. And then when I think about the sequential change from Q2 to Q3 in total, tonnage per day on a historical basis is about 2% lower than Q2. I wouldn’t think that we would be too far outside of that range as we continue to execute our yield strategy.

Jack Atkins

Okay. So from what I’m hearing you say there, Dan, it sounds like you are expecting things to maybe follow normal seasonality as we move through the third quarter from a top line or tonnage perspective. When we think about sort of the tonnage decline in June, what type of freight were you guys kind of focusing on purging from the network? Can you maybe talk about that just for a moment was that more TL rated freight that was sort of living in the network? And just kind of what were you looking to maybe avoid from a freight perspective in June and July?

Darren Hawkins

Jack, this is Darren. And we focused on the large corporate accounts. And our contracts renewals say that process now our spot in truckload we have been very selective in that area to reposition equipment which is in high demand the way the North American supply chain has been out of sink. So, truckloads and spots very important to us just to reposition equipment, but we are staying away from that level of business that we would normally do. But on the corporate side was where the real focus was at. And I am just very comfortable with the yield strategy. We’re just sound and strong in that area. I like the direction we are going. We are focused on profitability and the volume equation we will look into that next year. Right now, we are focused on our network, our people and our profitability. That yield strategy will remind that way when you see the 11%, 12% increases in contract renewals that continued in the July. We are going to keep our foot on the gas in that area.

Jack Atkins

Okay, that makes total sense. And then I guess logistics in about bottom line seasonality. Typically, operating ratio deteriorated slightly, 2Q to 3Q. With the focus on yields, improved PT as a percentage of revenue, I think that’s the plan as we move through the balance of the year, new equipment coming in. I’m not asking for guidance, but would you expect to maybe do a bit better than normal seasonality, just given those tailwinds sequentially?

Darren Hawkins

I want to quantify before Dan answers the specific question you asked. I do want to quantify where some areas of improvement will occur in Q3, especially around purchase transportation. So since we are on the subject, I believe, and based on what we have seen in the recent weeks, the American workers coming off the bench. And we have had some success in the area of dock and driver that I believe is going to help with this purchase transportation equation. It’s not going to add capacity to our network, what it’s going to do is shield us from some of the purchase transportation we have seen. But I would like Dan to talk about that, and then he can answer your ORR question, and Darrel can follow it up with one of the hiring pieces. Go ahead, Dan.

Dan Olivier

Yes. I will start with the purchase transportation cost, Jack. Total PT for the quarter was up $84 million year-over-year. $16 million of that came from revenue-generating PTs, and that’s associated with the growth at our Logistics division. Our over-the-road PT was up $28 million. Rail was up $21 million, and local cartage was up $15 million. And as I have mentioned in my prepared remarks, PT expenses are still elevated due to the strong demand and tight capacity, but we did reduce PT as a percentage of revenue from 16.7% in Q1 to 15% in Q2 and we do expect continued improvement in the back half of the year. Lastly, on that, I will say I want to point out that our total SWB and PT combined in the second quarter was 73% of revenue, which is down from 77% in Q1 and down from 76% in Q2 of last year. As far as margins, you brought up a good point. So sequentially, on a historical basis, our operating ratio increased slightly from Q2 to Q3. But with the continued strong focus on yield, our continued investment in the new equipment, I expect we have a chance to perform better than that historical trend.

Jack Atkins

Okay. That’s great. That’s very encouraging, Dan. Thank you and I think that’s great to hear. So I guess, maybe last question for me, and I will turn the floor over. But I guess for Darren or Darrel, if you could maybe talk about, as we look forward into 2022 and the completion of the network integration for One Yellow, getting all four operating companies on one system. Can you maybe talk for moment about what that’s going to unlock for you in terms of operating efficiencies? Not asking for you to quantify a number, but just maybe kind of help us think about, will we begin to really see those operating efficiencies show up pretty quickly, once that One Yellow initiative is really complete?

Darren Hawkins

Jack, with the steady progress we are making on One Yellow, as I mentioned, having two of the companies on the technology, the third one moving over right now and then the fourth one coming on at the end of the year, we are in a position where the completion of the Reddaway contract removed the last barrier. That contract now has the same expiration as the rest of our companies and also it includes language to allow us to make the changes we need to go to One Yellow on the West Coast. So, with all that out of the way, the network is being connected. In 2022, we will be able to go-to-market as Yellow super-regional carrier, we can provide that 1, 2 and 3 day service that anyone is accustomed to from the regional environment and the transcontinental service that any national customer would expect, you could do it through one touch, one contact. You get the best service that we offer just by tendering the shipment to Yellow. That is our value proposition. It puts this company after many, many years in a position to actually expand and grow market share. That’s why when I made the comments on tonnage, not worried about that area of the business during this segment of Q3 and Q4, we are focused on pricing. We will continue to do that. And then the tonnage piece will come when we’re One Yellow, and we’re bringing that value to the marketplace that justifies strong yield and strong tonnage growth at the same time. It’s an exciting time, and we’re proud of what we’re doing around One Yellow.

Jack Atkins

Okay, great. Thank you for the time this afternoon guys.

Darren Hawkins

Thank you, Jack.

Operator

And our next question will come from Scott Group with Wolfe Research. Please go ahead.

Scott Group

Thanks. Good afternoon guys. So I just want to follow-up on the operating ratio. The other two union carriers were both, I guess, sub 90 ORRs this quarter. I know you said it should be a little bit better than or something better than normal seasonality in third quarter. But anything more you can give us in terms of where you think these margins can go in the near-term in the back half?

Darren Hawkins

Scott, when you look at the yield strategy being sound and strong and coming across market-leading on actual revenue per hundredweight. The positive trends that we have talked about in purchase transportation, also continuing with strong hiring over the last 3 weeks that we believe will continue to drive purchase transportation in the right direction. Largest investments from a CapEx piece, $0.5 billion this year into equipment and others. And then the steady progress on One Yellow that I just talked about. And then you back all that up with a strong liquidity position of over $400 million. This company is in an excellent spot during an excellent market to move in the right direction. And that staircase of improvement I talked about, we are well-positioned for that. Not guiding around 2022, but I am trying to demonstrate that each quarter, we are going to continue this level of improvement while retooling the company to compete as a super regional carrier and that we have the wherewithal to see that strategy all the way through.

Scott Group

Okay. Can you give us an update on where we are in terms of terminals today? And when we complete with the One Yellow integration, where you think we’re going to end up?

Darren Hawkins

Right now, we’re at 322. There is not going to be a dramatic change in that number between now and the end of the year. We will land somewhere around 310 when we are complete, maybe 309 million. But with the changing capacity equation, one thing I am not willing to do in this One Yellow change is to give up geography or to give up capacity that our customers need in the right market. So, we are watching that closely, but the final number is going to be north of 300 probably in the 310 range and that will play out over the next two or three quarters.

Scott Group

What do you think about other overhead things like, be it people or other parts and overhead? What are the opportunities there?

Darren Hawkins

Well, certainly, when you look at a holding company that was designed to support four separate companies, there is lots of opportunity in that area as we transition to One Yellow. But I would like Darrel to talk about some recent trends we have seen and also this area around purchase transportation that Dan gave the percentages on, but Darrel make a few comments around your plans in that area.

Darrel Harris

Yes. Thanks, Darren. So Scott, in that area, I mean, obviously, our primary focus in Q2 and then ongoing in Q3 is really about controlling the PT expense that got away from us in Q1. And we have been very aggressive about returning short-term rental equipment, of course, targeted hiring in locations where we were seeing high levels of PT. And then Darren has already mentioned the whole component with the yield piece that we are utilizing to throttle that to ensure that those costs remain in check. I guess, what gets me excited is more about the future and where we are going when we become One Yellow, you talk about the fact that being on one technology, having been in this job for four months now, I can tell you there is a lot of hoops that you jump through inside the organization when you are on multiple pieces of technology. And so when you combine the integration of the network along with being on one platform, the synergies that are created, the operational efficiencies that are driven then, as you mentioned, the opportunities with overhead are pretty clear to be seen. And so right now, we are balancing the efforts to transform our business with this strong demand environment that we are in and really focused on the fundamentals along the way.

Scott Group

No, I guess what I am trying to get at, like, put the PT issue aside, that will ebb and flow with the cycle. I am just trying, is overhead, is this $100 million opportunity, a $500 million opportunity, a smaller number? I am not really sure how to think about it.

Darren Hawkins

Scott, we have started with the position and this is a show me story and in each quarter when I talk about the staircase of financial improvement on our path to profitability and our path to One Yellow. We are trying to lay out each phase of the equation and give adequate information on the equipment just coming in the actions we are taking, but we are still not prepared to give guidance.

Scott Group

Do you think you had realized any overhead savings yet as through this process?

Darren Hawkins

Yes. Absolutely, on the sales side of the equation, our commercial division, we have seen a very streamlined approach. It’s happening in our pricing route as well now that we have brought that group together. From a human resource standpoint, the human resource department and then also as it moves through maintenance and then the corporate structure overall. It’s efficiencies that are being gained and we will continue to capture those.

Scott Group

Alright. Thank you, guys. I appreciate it.

Darren Hawkins

Thank you, Scott.

Operator

And our next question will come from Jeff Kauffman with Vertical Research Partners. Please go ahead.

Jeff Kauffman

Thank you very much. Congratulations on the progress.

Darren Hawkins

Thank you.

Jeff Kauffman

Just a couple of quick things, can we go back to the purchase transportation discussion. I don’t write as fast as I would like to, but it’s starting with you have talked about PT being up $4 million and then you deducted I think the PT that was related to, I don’t know whether it’s a logistics business. When you have talked about the OTR increase, the intermodal and the cartage, can I ask you go through that math again?

Dan Olivier

Yes, sure, Jeff. This is Dan. So yes, you are right on $84 million year-over-year in total. The revenue-generating PT was up $15 million. That’s what’s tied to our logistics division. The OTR PT was up $28 million. Rail was up 21% and local cartridge was up $15 million.

Jeff Kauffman

Thank you. So, you talked about progression from 16.7% in the first quarter, I guess the way I think about it is when you get this right, what should that percentage be and is the issue here that you were caught short of people and you had to go out and purchase in the market at higher prices or is that you have the right amount of people and you are engaging in normal PT as just the market prices were so high?

Darren Hawkins

Jeff, this is Darren. The $16 million in logistics love it, want more of it. I want to see it grow and expand and double-digit growth. The business is exploding. We are proud of it, and I am anxious to see it to be material, where we can talk about it more often. The $21 million rail very comfortable there. The $15 million in local cartridge, that’s an area that we can impact with our March truck operation and also we have seen some nice success in the local city pickup and delivery hiring that will continue to bring that down. To optimize and go to the point that you asked, what would be our deal. So, a portion of over the road, a portion of rail is a very good mixture for us and what would ideal right now is for us to have more long haul drivers. We are making nice progress in city operations. We are still short on the over the road drivers and we are using purchase transportation in lanes that we would rather not. So, through the hiring initiatives and my comment about the American worker coming off the bench, Darrel and his recruiting team have seen some nice additions over the last two weeks to three weeks. And even though that doesn’t do anything on the overall capacity equation for us, what it does do, as we have continue to expand this line haul driver piece where we can move away from some of the more expensive PTs. So, that percentage would be down three or four points total on revenue. But as long as we are using contractual PT in the right lanes and fully utilizing the rail that aligns with our service commitments, I would be very pleased with that pace and that’s what we are working towards.

Jeff Kauffman

That was a great answer. Thank you. One follow- up, not to be critical, I apologize. It comes off that way. But with 16% yield improvement on 8% tonnage growth, I would have thought that the incremental margins would have been a little stronger, I think PT was part of it. But when I went back and looked the increase in labor expense, it did seem to be a little bit more than I would have guessed, given kind of 8% to 9%, shipment and tonnage growth. So, I just want to know if there were some special items in there, or you are just trying to hire and get ahead of things and just seem a little bit higher than I would have expected. So, can you help me understand that?

Darren Hawkins

There are two pieces. One is training piece, we have got a lot of new employees coming in, and their experience levels requires training, mentoring, and, ties up existing employees as well. But most importantly, the part of the discussion goes to, we have a tremendous amount of extra people in the organization as part of this transformation and doubling up in terminals that are converting to new technology to make sure the customers experience is seamless through that process. All of these people bring tremendous value to the organization. But over time, they will be redeployed into pure customer facing operational roles that are critical to the business. And a lot of the extra expense and overhead that we are having to invest and to get through the One Yellow transformation will normalize during the next several quarters.

Jeff Kauffman

Okay. So the point I guess and today is if I look at, say, a year from now, let’s just say the market exactly where it is today. That indeed, once the singular system is employed at the company, and once some of this training and expense is done, there could be 300, 400 or 500 points of revenue that we pick up over time.

Darren Hawkins

As I mentioned with Scott, I am not willing to go into the area of guidance, but what I am willing to say, and I made this comment in my script. I have high expectations for this team, and I have expectations that the system and the One Yellow will be much sooner than the timeframe you just mentioned and that those benefits will be normalizing. We are aggressive. We are serious about this mission. And we are going to bring that value to our customers quickly.

Jeff Kauffman

We wouldn’t be doing our job if we didn’t masks. Thank you for your answers and congratulations.

Darren Hawkins

Thank you for the coverage.

Operator

And our next question will come from Bruce Chan with Stifel. Please go ahead.

Bruce Chan

Hey, good afternoon. Thanks for the time. Got a couple questions here for you the first one a little bit more on the housekeeping side, Dan, you gave us some of the sequential monthly trends on the tonnage side. And I may have missed it, but did you give a progression for yield by month? And if not, would you be able to do so?

Dan Olivier

I did not. And we typically don’t give what the sequential yield changes are through the quarter. But what I will say is that yield on a year-over-year basis was accelerating through the quarter. Their investment in – July’s contractual renewals were north of 11%. And when I think about Q2, on average, we can average around 10%. We still continue to see momentum there.

Bruce Chan

Okay, great. That’s, that’s really helpful. And then second question, maybe a little bit more thematic on service levels and claims ratios. And I don’t need any hard numbers, of course, but maybe you can speak to some of the sequential experience there. And especially as you start to roll out some of this, shiny new equipment, is it opening up some opportunities for you to take pricing up even further?

Darren Hawkins

I will start with that, Bruce. And I appreciate you being on the call today also. And I will let Darrel make any comments as well. The entire industry right now, the entire North American supply chain is still in crisis with customers really being positive about a carrier being able to pick up the freight. So this is a challenge across the industry we see it on the larger accounts where services displayed by carrier, and each carrier is really focused on their network, keeping it efficient, and also protecting it from those log jams that are created when we get to overcapacity. Anytime there is a lot of re-handle, then claims can be an opportunity. We have been very consistent on claims over a long period of time. There is always room for improvement. All the new trailers that we are purchasing will certainly play well in that arena. We haven’t talked about that enough, because the tractors are such a big return. The trailers bring a very nice ROI with them as well. And also benefit to customers in a positive way. So, all green shoots in that area for the company. Darrel, anything you would like to add there?

Darrel Harris

Yes, Bruce, I would just say, we are obviously experiencing some constraints in certain markets as all the carriers are right now due to tighter capacity and the employee availability piece. Very encouraged by the last 3 weeks of hiring, the best hiring numbers that we have seen in the last – all year, here in the last 3 weeks, particularly around dock workers and drivers in the city operations and what that does for us is it really helps us keep the network more on track and fluidity within the network that allows us to reduce re-handle or reduce overtime, reduce these things that would create inefficiencies, particularly might drive claims in the wrong direction. And so we haven’t seen inflation there. In our claims number we have seen – our service numbers have been challenged when compared to a normal environment. And so our main focus is a high level of communication with our customers so that they understand where our pinch points are, but then more importantly, providing them the much-needed capacity that they badly need in this environment with our nationwide network. And so, services one we are going to continue to work through. And that’s why we are utilizing the yield lever has necessary to make sure that we can meet our customers’ expectations.

Bruce Chan

Okay, great. Thanks for that color.

Darrel Harris

Sure.

Operator

And this will conclude question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Darren Hawkins

Thank you, operator and thanks again to everyone for joining us today. Please contact Tony with any additional questions that you may have. This concludes our call and operator I am turning the call back to you.

Operator

Thank you. And this now concludes today’s call. Thank you for attending today’s presentation. You may now disconnect your lines at this time.