Saia - Q3 2014
October 28, 2014
Transcript
Operator (participant)
Good day, and welcome to the Saia Incorporated Third Quarter 2014 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Doug Col. Please go ahead.
Douglas Col (Head of Investor Relations)
Thank you. Good morning, everyone. Welcome to Saia's Third Quarter 2014 conference call. Hosting today's call are Rick O'Dell, Saia's President and Chief Executive Officer, and Fritz Holzgrefe, our Vice President, Finance and Chief Financial Officer. Before we begin, you should know that during this call, we may make some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and all other statements that might be made on this call that are not historical facts, are subject to a number of risks and uncertainties, and actual results may differ materially. We refer you to our press release and our most recent SEC filings for more information on the exact risk factors that could cause actual results to differ. Now I would like to turn the call over to Rick O'Dell.
Richard O'Dell (President and CEO)
Well, good morning, and thank you for joining us to discuss Saia's third quarter results. I believe the results truly reflect the efforts of the Saia team to handle the increased volumes that we've experienced in 2014. While results from the first half of the year were challenged by higher expenses and less than optimal productivity, the third quarter results directionally show that we're adjusting to the higher tonnage in our network, and we're able to improve our operating ratio compared to last year. What made it even more memorable quarter was the celebration of Saia's ninetieth anniversary, which coincided with third quarter revenue and EPS that were both all-time records for our company. Some details from the quarter compared to the third quarter of last year include: our total revenue increased 13.5% to $333 million.
Our LTL tonnage increased 8.2% on 7.6% more shipments. Our LTL revenue rose 12.9%. Our operating ratio of 91.8 improved by 70 basis points compared to an OR of 92.5 in last year's third quarter. Earnings per share of $0.64 compares to $0.51 per share a year ago, the 25.5% increase. Our customers' understanding of the value proposition and commitment to quality offered by Saia continues to build. We achieved LTL yield improvement of 4.3% in the third quarter compared to last year. Our accident expense, which had risen in each of the first two quarters of this year, in the third quarter, returned to a level more in line with our historical trends.
With that expense category in line, the results better reflect the success we should be demonstrating from growing tonnage, yields, and ultimately, our profits. I'd like to take the time to highlight some of the most relevant trends across our organization, which we believe will be the foundation for improved performance in the future. We've added resources in safety, maintenance, and claims management to continue to drive further measurable improvement in these areas. Our pricing on contract renewals continues to advance in the 5% range for the second quarter in a row. The investment we made in our sales force last year has yielded results, and we plan to make additional investments in sales and marketing resources before year-end.
Our fuel economy at 6.8 miles per gallon for the quarter is up 1.1% from last year as a result of our skilled drivers achieving maximum performance, supported by the in-cab technology investments. With steady reinvestment in our fleet, we've lowered the average age of tractors and trailers in each of the past two years. Our load average is up 2.1% from the prior year, aided by higher volumes, plus the addition to our trailer fleet of some 400 linehaul pups, each equipped with logistics posts. By year-end, we'll have put another 400 of these units into service, further enhancing our network optimization opportunities. We've modified all of our 27 dimensioners and can now accommodate larger shipments for further optimization.
Our early adoption and enhancement of this technology puts us in a position to continue to realize benefits with respect to costing accuracy and yield enhancements. Our Purchased transportation miles, as a percent of total linehaul miles, dropped to 14.7%, down from 15% in the second quarter. And finally, I'm pleased to report that LTL tonnage growth continued in October at a similar pace to the growth seen during the third quarter. In spite of the capacity-constrained environment, service has returned to 98% on time during the quarter. We continue to incur higher costs for Purchased transportation, overtime, and recruiting in order to provide this value proposition to our customers.
While these costs have limited our margin improvement, I'm encouraged with the opportunity moving forward to reoptimize our costs and manage our business mix and yield, which should allow for further margin expansion in the future. We enter the fourth quarter with improved results, a strong balance sheet, and plenty of opportunity for further improvement across our network and throughout our organization. Saia is well positioned to continue to grow with new and existing customers, delivering a value proposition that's unique from a service perspective. Before I have Fritz review the third quarter results, I'd like to officially introduce him to the analysts and investors on the line. Fritz has been here a little more than six weeks and is already making a positive contribution to our organization. I believe his deep financial and business acumen will serve Saia and its shareholders well for years to come. Fritz?
Frederick Holzgrefe (President and CEO)
Thanks, Rick. I appreciate the kind introduction, and I also appreciate being introduced simultaneously to a record quarter. Good morning, everyone. As Rick mentioned, the third quarter of 2014 earnings per share were a record $0.64, compared to $0.51 in the third quarter of 2013. For the quarter, revenues were $333 million, with operating income of $27.1 million.
This compares to 2013 third quarter revenue of $293 million and operating income of $21.9 million. Both periods included 64 workdays. As noted, LTL yield for the third quarter increased by 4.3%, primarily reflecting the favorable impact of continued pricing actions, consistent with the trend of the past several quarters. During the quarter, we did experience higher costs in some key areas as follows: salaries, wages, and benefits rose 12.9% to $166 million in the third quarter, reflecting additional wages associated with the higher tonnage trends and our investment in driver safety, maintenance, claims management, and sales and marketing resources. Also, in July, we implemented a wage increase, averaging approximately 3% across the company.
Healthcare costs increased $1.3 million in the third quarter of 2014 compared to the prior year Purchased transportation expense for the quarter rose $8.6 million compared to last year. This increase relates to tonnage growth, increased rates for truckload capacity, and less usage of lower-cost rail capacity. Depreciation and amortization of $15.3 million was $1.6 million higher than last year, reflecting our significant investment in tractors and trailers over the last 12 months to reduce the average age of our fleet and to accommodate volume growth. Our claims ratio was 1.0%, a slight deterioration from our 0.9% of a year ago. Our effective tax rate was 37.6% for the third quarter of 2014.
For modeling purposes, we expect our 2014 effective tax rate to be approximately 38%. At September 30, 2014, total debt was $73.3 million, inclusive of our $7.2 million in cash, net debt to total capital was 15.9%. This compares to total debt of $91.5 million and net debt to total capital of 22.9% at the end of last year's third quarter. Net capital expenditures in the first nine months of 2014 were $85.5 million, including equipment acquired with capital leases. This compares to $97.7 million spent in the first nine months of 2013. We project net capital expenditures for the full year of 2014 to be approximately $118 million.
This level of capital expenditures includes revenue equipment, as well as investments in technology and terminal improvement projects. Now I'd like to return the call to Rick.
Richard O'Dell (President and CEO)
Thank you, Fritz. Before we open up for questions, I'd just like to reiterate that I'm encouraged by the third quarter improvements compared to the prior year. I feel strongly that Saia is well positioned to continue to take share and refine our operating performance for the benefit of our customers, our employees, and our shareholders. With that said, we're now ready to answer some questions. Operator?
Operator (participant)
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one for questions. We'll pause for just a moment to assemble the queue. We'll go first to Scott Group with Wolfe Research.
Scott Group (Analyst)
Thank you. Hey, Rick, welcome, Fritz.
Richard O'Dell (President and CEO)
Morning, Scott.
Scott Group (Analyst)
Rick, you typically give us some thoughts on how you think the next quarter is gonna play out. I think you mentioned kind of tonnage tracking up in that 8% range, but maybe still some of the higher costs. Maybe just some additional color you can give us there from an OR standpoint.
Richard O'Dell (President and CEO)
Yeah, sure. You know, in the recent years, the fourth quarter has been about two points worse than 3Q, you know, due primarily to weakness in December around the holidays. While there's probably a little more risk due to the way the holidays fall this year in the middle of the week, particularly the Christmas holiday, we still expect to be in this range from an OR standpoint.
Scott Group (Analyst)
Does that assume a GRI in the fourth quarter, and do you have anything you wanna share about the GRI?
Richard O'Dell (President and CEO)
You know, we tend to kind of follow the market from a general rate increase perspective. And so, you know, you could probably assume that we'll be in play from a GRI perspective, but we kinda tend to go at the end of the market. And, you know, we think that, you know, those small customers are clearly valued, and, you know, we wanna make sure that they're treated properly, and we'll keep our kind of our tariff and our rates in line with the competition.
Scott Group (Analyst)
But your comment about that 200 basis points of sequential pressure on OR, does that assume a GRI over the next week or so, or is that without that?
Richard O'Dell (President and CEO)
It does not. It's without it. We're probably looking at something more around the end of the year.
Scott Group (Analyst)
Okay.
Richard O'Dell (President and CEO)
Wouldn't have much impact on the quarter.
Scott Group (Analyst)
Okay, fair enough. Bigger picture, you know, you guys are getting the tonnage, but probably the incremental margins not as good as folks were hoping. So when do you think that starts to show up? Do you... Is this—does it just take a couple more quarters? Is it just unrealistic in this kind of driver market? When do you think we can start seeing those incremental margins get to that, hopefully that 20% or maybe better range?
Richard O'Dell (President and CEO)
Sure. Yeah, obviously, it was kind of another difficult quarter from a cost perspective. You know, we targeted a number of efficiencies during the year, and while our fuel economy and our load average improved, you know, given the capacity constraints and the difficult driver recruiting market, we're behind in some of our cost savings projects. And in fact, you know, we're incurring higher costs Purchased transportation, recruiting, training, new hire bonuses, and overtime. And, you know, we would estimate that these higher costs in this capacity-constrained environment probably cost us about 0.5 point on the operating ratio. But we're very committed to our value proposition, and near term, you know, we're, we're using some, what I would call, Purchased transportation and some overtime, you know, to service the customer's freight.
It's a good opportunity for us to kind of do some reoptimization, you know, over a period of time. And then also, there are some lanes, et cetera, that clearly need to be repriced. So, a combination of kind of yield, business mix management and the cost, you know, should be able to see some, certainly some progress. You know, one thing you'll note is, you know, we've raised our target for contract renewals, which, you know, coming into the year, we're in the 3% range, and we're now targeting a 5. And for two quarters in a row, we've been around that range from a contract renewal perspective, and that, that, you know, compounds and builds momentum over time.
It doesn't have a big impact on a quarter, but if you look out, you know, two quarters, you know, that can have a pretty significant impact.
Scott Group (Analyst)
Yeah, no, for sure. Just, just last thing on that point, Rick. The, the extra cost that you're talking about, do you think that they're similar in fourth quarter and third quarter? Any signs of it getting worse? Any signs of it moderating some of those pressures?
Richard O'Dell (President and CEO)
Well, you know, the peak month, you know, from a volume perspective for us, is normally in November, right? So you're still gonna be dealing with some of that, and then I think there'll be some opportunity for us to kind of reoptimize Purchased transportation. and, you know, what you're ending up with is, we've made a lot of progress from a staffing perspective to kind of handle the volumes that we're having today. But in doing that, in some cases, we're buying some Purchased transportation that's suboptimal, and in some cases, running over, you know, some of our own capacity things in order to free up drivers in, let's say, two or three markets where you've got some shortages, right?
And so, you know, that allows you to kind of service all the freight, both the regional and the interregional business, but it's, you know, it's suboptimal from a cost standpoint for a period of time. And I think as the volumes, we get out of our seasonal peak, there'll be a better opportunity for us to kind of reoptimize on Purchased transportation side. But it's probably a December, January, February time period, as opposed to October and November, which tend to be kind of some peak shipping volumes.
Scott Group (Analyst)
Okay, makes sense. Thank you, guys.
Operator (participant)
We'll go next to Brad Delco with Stephens.
Brad Delco (Analyst)
Hey, Rick, good morning. I changed my name, apparently.
Richard O'Dell (President and CEO)
I know, right, Brad? Good morning.
Brad Delco (Analyst)
Rick, so the question I had, I think you addressed it on the second quarter conference call. I think you said roughly 50% of your line haul was rail. Is that correct? And then where, where was that this quarter? And, you know, could you sort of maybe quantify what you think, you know, the shift away from using rail for line haul has cost you on Purchased transportation line by itself?
Richard O'Dell (President and CEO)
I think in today's environment, with the increase in PT, the truckload side is probably up more than the rail. Due to some of the rail disruptions, plus, you know, our desire to make sure we're servicing the customers in this capacity-constrained environment. So, you know, our cost per mile is up as well as our utilization, so it's impacted. We're impacted on both sides there. And I guess what I would tell you, as opposed to just saying what's rail versus the TL side, I mean, I think you kind of go back to that. Our excess costs in the quarter were probably, you know, somewhere around half an operating point. And, you know, our opportunity to kind of reoptimize that isn't really-- isn't necessarily dependent upon the return to the rail service.
It's more us getting our staffing in some of these certain locations where they need to be, so we're not, we're not having to buy, you know, truckload capacity at $2.10 a mile.
Brad Delco (Analyst)
Gotcha. Okay, and then-
Richard O'Dell (President and CEO)
Or in some cases, higher.
Brad Delco (Analyst)
Gotcha. And Fritz, can you give us the tonnage by month, July, August, September, and where it is thus far through October?
Frederick Holzgrefe (President and CEO)
Sure. So if you look back at the, third quarter, so, adjusting July for the impacts of the holiday in 2013, we saw a 7.6% LTL tonnage growth. August was 6.9%, September, 8.8%. And, in month to date, we're, you know, in the sort of 7% growth range.
Brad Delco (Analyst)
And that's just LTL?
Frederick Holzgrefe (President and CEO)
Yes, sir.
Brad Delco (Analyst)
Correct.
Frederick Holzgrefe (President and CEO)
Yes, exactly.
Brad Delco (Analyst)
I guess, and then maybe just a point of clarification, for Rick or Fritz. About a year ago is when you started to really see a meaningful growth in your TL tonnage. I think last fourth quarter, it was up 19%. The quarter before that, it was up 1%. So we're, we're kind of lapping that, I guess, going into this fourth quarter. Any sort of guidance on what you would expect your TL tonnage to do in the fourth quarter with that tougher comp now?
Richard O'Dell (President and CEO)
Yeah, I think it'll probably come down more in line with where our LTL is running. There's a couple dynamics going on there. You know, we had enhanced a spot quote program, you know, to fill backhaul capacity. And, you know, as we have seen some capacity constraints, we've been more restrictive of just handling spot quotes at all, just because, by definition, you know, it's cheap rates, right? You're discounting off of your standard pricing programs. Obviously, there's certain spots that it makes sense to do, particularly in the backhaul lanes, but a lot of our lanes, or a lot of the shipments that are moving are partial backhaul, and then it turns into head haul, and when you're having capacity issues, you know, that becomes less attractive. So we've been more price disciplined with that.
And then just obviously, with the truckload capacity constraints, you've got some customers that are breaking up shipments and shipping them, you know, heavy LTL-type shipments. So those two things have had some impact on us. But I would say, going forward, you'll probably see it come down more in line with our LTL tonnage as we overlap that this next month, October, November.
Brad Delco (Analyst)
Great. Well, I'll get back into you guys. Thanks for the time.
Richard O'Dell (President and CEO)
All right, thanks.
Operator (participant)
We'll go next to Thomas Albrecht with BB&T.
Thomas Albrecht (Analyst)
Hey, Rick and everybody. First, kind of a cleanup there. I forget if it was Rick or Fritz. You gave the PT. It was, what? 14.7% of miles, and what was it versus?
Richard O'Dell (President and CEO)
It was just down slightly from it had been 15% in the prior quarter.
Thomas Albrecht (Analyst)
Okay.
Richard O'Dell (President and CEO)
So kind of what we're saying is, you know, while we haven't really been able to reoptimize some of the suboptimal PT yet, while directionally we made some progress, you know, given that we're kind of in a peak volume period, we haven't really been able to reoptimize and get all those lanes staffed where we'd like to be moving some of the stuff on our own equipment.
Thomas Albrecht (Analyst)
And I think piggybacking on Brad's question, I think you talked about PT in terms of miles, was kind of 50/50 between truck and rail, but the rail, because it's cheaper, was maybe only 30% of the actual dollar spend. Is that in the ballpark?
Richard O'Dell (President and CEO)
That's correct. Yeah, I, I can get those numbers. I actually didn't bring those here, so I... We'd have to give that to you offline. Yeah.
Thomas Albrecht (Analyst)
That's fine. I guess really what I'm trying to just making sure I got the right numbers is, over time, if you're going to control that truckload portion, is that really going to be a function of you just having more of your own internal equipment? What will be the biggest positive influence since the truckload market's probably going to be pretty perky for the next few years?
Richard O'Dell (President and CEO)
Yeah, we just need to get staff from a driver perspective in certain locations that are not allowing us to relay freight across on a timely basis, right? So in other words, I might be buying, you Purchased transportation to move 1,500 miles and then turn around and buying it 1,500 miles back. Whereas if I could relay that across on my own equipment, with my own drivers, in some cases, once you launch something for 1,500 miles, you run over partial empties, right? Plus, in some cases, I'm paying $2.10 a mile, and my cost is, you know, 25%-30% cheaper than that, even fully allocated.
Thomas Albrecht (Analyst)
Right. So drivers more than equipment. The reason I asked about equipment is because of the elevated level of CapEx, so.
Richard O'Dell (President and CEO)
Yeah, you know, most of that's really to improve the age of our trailers and you know, some incremental equipment from a growth perspective. But, you know, one thing you have in our business, right, is that the size of your fleet is really driven by your city operation with the dual use of most of your equipment.
So to some extent, you know, we have plenty of capacity to move these loads with our own equipment if we just have drivers.
Thomas Albrecht (Analyst)
Okay. So then, I think, just in general, from a pricing discussion, given that a lot of the fuel surcharges were somewhat compromised or rolled into base rates during the Great Recession, given that oil has come down so aggressively and now diesel, what has the flavor of the rate conversation begun to change yet? Because it seems like LTL had the surcharges pounded into the base rates, maybe a little bit more than truckload did a few years ago.
Richard O'Dell (President and CEO)
Yeah, I don't know. I mean, overall, among our customer mix, the fuel surcharge revenues correlate pretty well with, you know, with the cost basis. So I don't know that that's entirely true, but, you know, I think one thing it does is, you know, if somebody's fuel surcharge is going down 2% and, you know, we're trying to get a 5% increase in base rates, it makes the discussion a little bit, from their budgetary purposes, a little bit easier to go, right?
Thomas Albrecht (Analyst)
Right.
Richard O'Dell (President and CEO)
So that's kind of a plus. So we've been, you know, we think the rate environment is pretty favorable, and people understand the supply, demand dynamics that are going on. And, you know, we're taking, you know, pretty firm stance with some of our very analytical, pricing, models to make sure we're getting compensated properly, particularly in some of these markets that are really tight from a driver capacity standpoint.
Thomas Albrecht (Analyst)
Okay. All right. That's helpful. Thank you.
Operator (participant)
Welcome next to Art Hatfield with Raymond James.
Arthur Hatfield (Analyst)
Hey, good morning, guys. Hey, just real quick, did you guys give your cargo claims ratio in the quarter?
Richard O'Dell (President and CEO)
Yeah, it was up a, up a tick, about 1%, up from 0.9 last year. And, you know, as your network, you know, kind of had some capacity challenges, there was a little bit more handling of the freight and in the quarter, so we saw a little bit of a tick up, but it's still certainly a good cargo claims ratio and also something that we see as an opportunity to improve moving forward with some further investments we're making.
Arthur Hatfield (Analyst)
Good. And you had mentioned, Rick, that you're going to... You're thinking about or you're going to add some sales personnel? Did you say you were going to do that towards the end of the quarter? Or how can we think about that relative to how it impacted results when you did this a little over a year ago?
Richard O'Dell (President and CEO)
Yeah, I mean, obviously, it paid some good dividends. I mean, we're growing field business faster than national accounts business at almost twice the rate. You know, that's a positive from a business mix standpoint and a yield standpoint moving forward. So, you know, we're looking to add about 8% to our sales resources between now and through the first quarter of next year. I think our timing, you know, proved particularly fruitful last year just because of the, you know, kind of industry turmoil you had with the, with the merger of the Vitran scenario there.
I don't know that we would have the exact same performance, but you know, our analytical data shows that we're underrepresented in some markets, and there's a good opportunity for us to participate with these smaller, you know, good margin customers, and we're gonna you know, support that with some incremental investments and have some face time.
Arthur Hatfield (Analyst)
I'm sorry, you broke up. Did you say 8% to sales resources between now and the end of this year or next year?
Richard O'Dell (President and CEO)
Between now and the end of the first quarter, so over the next 4-5 months.
Arthur Hatfield (Analyst)
Okay. Okay, perfect. And then finally, I tried to look back in my notes, but I couldn't find it, if in fact it even occurred. But did you ever have a bad impact from the winter last year? And if so, I can't recall that you quantified it per se, from a cost or even a revenue perspective. Can you kind of refresh my memory on that?
Richard O'Dell (President and CEO)
We did not quantify it.
Arthur Hatfield (Analyst)
Okay, fair enough. Thanks for the time.
Richard O'Dell (President and CEO)
All right. Thanks, Art.
Operator (participant)
We'll go next to Bill Greene with Morgan Stanley.
Alexander Vecchi (Analyst)
Hi there. Good morning, it's Alex Vecchio in for Bill. So I just wanted to, you know, touch on the sort of volume versus rate increases. You're getting great tonnage growth of 8% and contract renewals of 5% is also really strong. I'm just wondering, though, is there a sort of case to be even more aggressive on the contract repricing, or are there specific accounts that need to be repriced more aggressively? Just so as you sort of balance the tonnage growth versus the rate increases, you know, you sort of mitigate some of these the cost headwinds that you incur as related to the tonnage growth. How do you sort of think about your pricing discussions and the extent to which that could even be stronger?
Richard O'Dell (President and CEO)
I think your point is entirely correct. I mean, in a tough market like this, you know, we need to be properly compensated for the incremental costs that, that we're incurring to provide our customers this value of service that we have. So we're having those discussions on a regular basis, and I would tell you, one of my advisors on our finance staff, he says that he's done an extensive analysis, and our network does a little bit better with price than it does with volume. So I guess if that tells you how we feel about it, I think that's probably correct, right?
Alexander Vecchi (Analyst)
Yeah. No, that makes sense. Do you, do you have a rough sense of, like, what percentage of your accounts are, are underperforming on the margin that, that you think can get improved there?
Richard O'Dell (President and CEO)
Well, most of the field business operates pretty well, and then you got your 3PLs that are kind of in the middle, and then there's some national accounts that operate well, and some lanes on certain national accounts, kind of on the margin, you know, aren't contributing very well, particularly with today's kind of higher Purchased transportation. so there's a pretty significant amount of our business that has at least lanes that need to be repriced. And I would just tell you, based on some analytics that we've done, it's a pretty meaningful opportunity.
You know, as you know, when you go through those and you're committed to your pricing dynamics and your analytics are good, you know, you have to kind of stand the customer up and explain what's going on, and if you know, if we've mispriced something, they have another opportunity, then we'll see whether we retain the business or not. But you know, I would tell you, you know, a couple quarters in a row with 5% contract renewals that may even go higher, I would say, kind of going forward.
You know, it doesn't have a big impact on the quarter, but like I said, if you look out two or three quarters, you know, those types of increases, you know, with the kind of early January GRI and some simultaneous repricing of some 3PL business that's growing a lot within our network as well, you know, we think the yield is a, is a meaningful opportunity, particularly as we head into 2015.
Alexander Vecchi (Analyst)
Yeah. No, that makes sense. That's very helpful. Okay, and then just switching gears real quick. This might be better directed towards Fritz. You know, the net debt to total cap at 16% is one of the lowest levels I think you guys have had in your history. How do you guys think about the balance sheet and optimizing the capital structure? And is there a sort of case for increasing leverage just to optimize that? Just sort of thoughts on the balance sheet would be great.
Frederick Holzgrefe (President and CEO)
So yeah, I think what we continually look at options to reduce our borrowing costs and optimize the balance sheet. And as the business evolves over the, you know, coming months and quarters, we'll continue to look to revisit that. But the focus at this stage is continue to optimize what's there. Obviously, pay down the Pru notes and then be in a position to, you know, continue to keep the financial flexibility that we need to grow the business.
Richard O'Dell (President and CEO)
And I would comment, too, that, you know, we've, we've talked off and on about our opportunities to do some geographic expansion. Or to look at some other, asset-light type businesses from an acquisition standpoint, and keeping our balance sheet strong so we can evaluate those opportunities as they move forward, you know, continues to be, you know, in our, in our sight, so to speak. Right?
Thomas Albrecht (Analyst)
Sure. Okay. Yep, that makes sense. Thanks for the time, gentlemen.
Operator (participant)
As a reminder, it is star one for questions. We'll go next to Bruce Chan with Stifel.
Bruce Chan (Analyst)
Yes, good morning, gentlemen, and welcome, Fritz. So most of my questions have been answered, but just wanted to touch real quick on the, you know, insurance and claims line. I mean, I know you guys have been putting in a few measures over the past couple quarters to, you know, sort of improve training. So can you talk a little bit about what's involved in that and, you know, what sort of impact that has on the OpEx line?
Richard O'Dell (President and CEO)
Yeah, I mean, we've always done a pretty extensive job of kind of training our employees and going through a kind of a test. I mean, we have a driver test, and when a guy comes in, he works with another driver specifically for a week, and we scorecard him on his defensive driving techniques and go through a process to, you know, to make sure that he's-- we're hiring the kind of person, and he has the skill set that we're looking for. We are adding to some of our regional safety management positions to kind of get more touches to our drivers.
And one thing I would tell you is, you know, given a lot of all the new in-cab technology, we have so much more data on kind of, let's call it, non-accident incidents that go on in the tractor. And, you know, we need some incremental resources to make sure that we're, you know, using this data to, you know, identify behaviors, both good and bad, that are taking place, and reward those that are using good defensive driving techniques, and counsel those that, that are not or retrain them in order to be able to, you know, prevent an accident, be out in front of it. So it's, you know, the...
Again, the data that we have today is pretty incredible that we're looking at from an in-cab perspective with respect to hard braking incidents or, you know, cornering at a rate that appears to be too fast, and then we get a video of the incident, have a chance to sit down with the driver and kind of see what was going on there, things that we didn't have before. So again, it requires some incremental resources to make use of this data and make good decisions with respect to the retraining and/or retention of an employee.
Bruce Chan (Analyst)
Great. Thanks for the time, gentlemen.
Richard O'Dell (President and CEO)
Thanks.
Operator (participant)
We'll go next to Jason Seidel with Cowen and Company.
Jason Seidl (Analyst)
Hey, guys, and welcome, Fritz. Looking at your capital spending, the last couple years has been, you know, well in excess to what you're appreciating. You know, I know you don't have the capital plan set for 2015, but should we look at it to be sort of flat to even potentially down on a directional basis?
Richard O'Dell (President and CEO)
Yeah, I think that's probably right, in that range.
Jason Seidl (Analyst)
Okay. And one quick follow-up. In terms of your GRI, could you remind us what percent of the business falls under that?
Richard O'Dell (President and CEO)
It's around 25%. And then if you-
Jason Seidl (Analyst)
Around 25%.
Richard O'Dell (President and CEO)
Yeah, and then if you kind of roll in your blanket 3PL, which we intend to increase in conjunction with kind of our GRI, that's probably another 10% of our business.
Jason Seidl (Analyst)
So you're talking about 35%, and you said that you would be on the late side, so it's more of a 15 impact than a 14.
Richard O'Dell (President and CEO)
Well, see, historically, we haven't necessarily increased the 3PLs in conjunction with our general rate increase. But given that they both kind of do business with this accumulation of small customers, you know, we think that's a prudent philosophy to take on.
Jason Seidl (Analyst)
Okay, fantastic. Thanks for the time, as always, guys.
Richard O'Dell (President and CEO)
All right, thanks.
Operator (participant)
We'll go to Brad Delco with Stephens for follow-up.
Brad Delco (Analyst)
Yeah. Hey, Rick, just a quick follow-up question. Your commentary on the sequential margins, and then sort of an earlier question reminded me of your comments around the investment in some additional sales force. Does that take into account that? And I guess the reason why is, as I look back last year, your sequential margins from third to fourth quarter were a little bit higher than, call it, that 2%. I think it was 2.2. And so what maybe specifically, cost-wise, have you anticipated in the fourth quarter related to those new hires?
Richard O'Dell (President and CEO)
I mean, it'll be a similar number from a cost perspective. I think last year we added 10% to the resources, and this year we're looking at 8%. You know, they may come in a little bit more slowly than last year as we, you know, bring the hires on, so may not have as much of a cost impact. And, you know, I think we have some we clearly have some opportunities, particularly as we get into November and December, to focus on some cost activities as well. And then, you know, there's some benefit. I think last year, you know, during this time period, we were kind of at a modest yield improvement, and, you know, our yield improvements are more meaningful than they were last year for this time.
So there's kind of some offsetting factors, and I think around 200 basis points is probably a, you know, as good a number as we could come up with at this point in time. But like you said, it could fluctuate around that with respect to what we see from a volume perspective. You know, we're taking some yield risk, so that can impact you from a volume standpoint as well. We focus on some of these cost opportunities, and then, as you know, we are always subject to winter weather and the way these holidays fall this year are kind of odd as well. But I, I think that-
Brad Delco (Analyst)
Yeah.
Richard O'Dell (President and CEO)
I think the 200 basis points in the right in the range there is a good number.
Brad Delco (Analyst)
Gotcha. No, that's good color, and that puts some more details behind it, so I appreciate that. Thanks for the time, guys.
Richard O'Dell (President and CEO)
All right, great. Thanks.
Operator (participant)
We'll take a follow-up from Thomas Albrecht with BB&T.
Thomas Albrecht (Analyst)
Hey, Rick, just a quick follow-up on your blanket 3PL pricing. Your overall 3PL exposure is greater than 10%, right? I mean, you're just talking about sort of pricing that you give to them on a GRI basis versus more customized pricing that relates to the individual shipper?
Richard O'Dell (President and CEO)
That's correct.
Thomas Albrecht (Analyst)
Okay.
Richard O'Dell (President and CEO)
Yeah.
Thomas Albrecht (Analyst)
So, so-
Richard O'Dell (President and CEO)
We call it blanket pricing, meaning they have pricing that they can just go out and resell, right?
Thomas Albrecht (Analyst)
Yep.
Richard O'Dell (President and CEO)
Right.
Thomas Albrecht (Analyst)
That's what I thought you meant. And if you include all the other types of 3PL exposure, that's what? Probably closer to 30% of your revenues.
Richard O'Dell (President and CEO)
Yeah, somewhere between 20 and 30, depending on how you kind of look at that. You know, some of these – some people, 3PL business, or they just manage the bid, or they're just paying the bill, or, you know, it's somewhere in that probably 25%-30% would be our total.
Thomas Albrecht (Analyst)
Okay. And then, did you say healthcare costs were up about 12%?
Richard O'Dell (President and CEO)
We said, $1.3 million, so in total.
Thomas Albrecht (Analyst)
$3 million. Okay. Okay, great. Thanks again.
Richard O'Dell (President and CEO)
All right, thanks.
Operator (participant)
We have no further questions in the queue at this time. I'd like to turn the call back over to Rick O'Dell for any additional or closing comments.
Richard O'Dell (President and CEO)
All right. Well, thank you for your interest this quarter. We're excited about, you know, kind of wrapping the year up and clearly focused on 2015 opportunities at this point. So thanks for your interest.
Operator (participant)
That concludes today's conference. We thank you for your participation.