Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

You've been in the US transport industry for some time and have worked at two companies of particular interest to me, Mainfreight and Old Dominion, particularly in the less than truckload (LTL) market. Could you start by describing what an LTL branch looks like?

Yes, a branch, also known as a terminal, is essentially a cross dock. It's like a warehouse but not set up for long-term storage. It's more for short-term handling of products. You bring in the product from the customer, place it on your dock, and then transfer it to another truck. It's also where you stage freight for delivery the next day or week. A typical branch might have 20 to 30 doors. It's usually set up with one side for outbound trucks and another for inbound. It's like a large rectangle with an office, doors on the outside, and separate areas for inbound and outbound trucks. Depending on the size of the location, they might have fuel on site or contract a partner to refuel the trucks.

So a truck arrives, perhaps with a container, and then what happens from that point to the moment the freight is dispatched elsewhere?

At major carriers such as Mainfreight, Old Dominion, and ABF, the driver is equipped with a PDA or a similar device like a cell phone or tablet. When they are dispatched to pick up a product, for instance, from ASIC shoes, from Nike, they enter the details of the pickup into their device. This could include information like 10 pallets are going to Memphis, two pallets are going to Long Beach, and two pallets are going to Seattle.

This information is then transferred to the Central Dispatcher at the pickup location, who is informed that 15 pallets are incoming and where they are headed. The Central Dispatcher then instructs the driver to park at a specific door, say door 15, for unloading.

At this point, the operations team, the people on the dock, would go there and separate the pallets according to their destinations. They stage these at the doors for the furthest locations. For example, if a truck is going to Memphis, Tennessee, it will be dispatched from there, and another truck going to Seattle, Washington, will be staged in front of those doors.

This is what an LTL (Less than Truckload) shipment is; multiple shipments, different customers into one truck. That's where it differentiates itself from a full truckload. What a truckload would be is your guts. 26 pallets going to one location. This is going, hey, you're doing typically under six pallets. And usually the pallets would be, depending on the size, typical LTL pallets are 48 inches by 40. It can go up to 96 inches. So what happens there is it's nice square freight and if it only goes up to 50 inches, then at that point you have to figure out how do you stack more product on top of that or how do you utilize the space.

In an LTL environment, space is everything, and you're charging for that space. If you can't optimize that space, you need to figure out how to stack more products on top or how to best utilize the space. For example, if you have a space of 48 x 40 x 96 and you can put another pallet on top that's 50 inches, you're charging the customer for the appropriate space you're using, and you're able to accommodate another customer's pallet at the same time. It's like playing Tetris, where you're trying to utilize every single space in the truck.

The measurement of the pallet and the density of the product determine how you're going to charge the customer appropriately.

Who owns the trucks, warehouses, and the real estate?

Old Dominion typically purchases all their terminals, with about 95% of them being their own acquisitions. They often level these properties or construct new buildings to meet their specific requirements. For instance, Old Dominion either has a very large footprint or an average one, which is around 20 acres. They usually develop half of this area, leaving the remaining half for future expansion.

To illustrate, in Reno, Nevada, they purchased 20 acres, developed half, and reserved the other half for future growth. This strategy is crucial because if you don't buy the property at the right time, it gets boxed in and becomes more expensive. In many instances, someone else might develop that land.

However, for a smaller player like Mainfreight, their approach differs. Mainfreight tends to look for larger warehouse locations as they have multiple branches. They aim to utilize the space for their LTL trucks, warehousing, and international operations. This is quite different from Old Dominion's focus, which is primarily on their LTL terminal and any extra space they have.

How does Mainfreight decide whether to own or rent real estate and trucks in the US?

Mainfreight makes these decisions based on demand. Unlike Old Dominion, which operates more as a corporate entity. They'll buy that property, they'll build it, and then what they do at that point, Old Dominion will say, I'm going to charge back that terminal and say, here's the cost. This is what you have to operate to be profitable and pay back that terminal. But they're willing to absorb that cost at the beginning right there. Mainfreight treats each branch as its own company to a certain extent. They have to decide, at the corporate level in the US, if they want to expand, and then they have to seek approval and budget from the corporate headquarters in Australia.

Each branch is responsible for paying back the company, making it a somewhat entrepreneurial setup. The branch manager is responsible for the profit and loss and must justify the costs. They might decide to open a location in North Carolina, for example, if they have enough demand there and it can sustain itself.

Old Dominion, on the other hand, might decide to add a location based on a density study. If there's a lot of freight in a particular location, they might decide to establish a larger location to service more people, or a smaller one to service a specific area.

How do these two different approaches impact operations and profitability?

Profitability is key. It's about determining if there's enough freight going to a particular location. For instance, freight companies like Mainfreight and Old Dominion report how much freight they are shipping out. This information doesn't specify which carrier is handling the freight, but rather indicates the volume of freight going into a specific area, say, North Carolina.

They use this data to compare with their own, to see if they have customers requesting to move to the same location. If there are a lot of quote requests or movements, they see the potential for profitability or cost reduction. For example, if they establish a terminal in North Carolina, they might handle a certain number of shipments which could reduce costs as they wouldn't have to hand it off to another provider. It's a value-add at that point.

How do Mainfreight and Old Dominion make these decisions? What are the differences in decision-making when it comes to opening or owning locations between the two companies?

They are two different companies with different approaches. Mainfreight tends to be more cautious, considering whether there's enough freight in a location to sustain itself before signing a 10-year lease or buying property. Mainfreight typically leases property, while Old Dominion, having more financial resources, prefers to buy. Owning property has its advantages, such as tax write-offs and control over costs. Leasing, on the other hand, can lead to increased rent and lease value over time. So, while there's a higher initial expense to owning property, in the long term, it allows for better cost control.

The decision-making process differs between Mainfreight and Old Dominion. Mainfreight, having fewer terminals, is more cautious. For instance, they might have 20 locations compared to Old Dominion's 330.

If I have two branches, one for Mainfreight and one for Old Dominion, each receiving one truck, could you walk me through what happens in both and compare the journey of a pallet in the two warehouses?

Absolutely, there is a difference. If you're picking up a pallet with Old Dominion, they have approximately 330 terminals throughout the US. They are constantly consolidating lanes, covering both nationwide and regional areas.

In contrast, Mainfreight can service any zip code in the US. If they don't service directly, they can hand it off to a partner carrier for delivery. They pick it up with their driver, send the information to the dispatcher, who then determines the destination. They consolidate the loads and ship them out to the furthest point they can reach with that truck, swapping it off there for final delivery.

The pallet is taken off the initial truck, put on their dock, and a dock worker reloads it onto another truck. This truck has a racking system, allowing them to optimize the truck to fit as many pallets as possible. The truck then either goes to a relay terminal or all the way to the final terminal for final delivery.

Mainfreight, on the other hand, picks up on a box truck and takes it back to their warehouse or terminal. They unload it and determine where it needs to go. They are more selective in where they pick up because they only service certain locations such as Atlanta, Dallas, Seattle, San Francisco, Chicago, Memphis, New York, and New Jersey. They take the pallet off the truck, put it on their dock, and then determine which truck is going to that location. For example, if they have a truck going to New York that leaves every Thursday and arrives on Monday, they will put it on that truck. This process is a bit slower.

If the pallet needs to go to Boston from New York, it will catch another relay truck. There are more legs to a Mainfreight shipment because they have a smaller density and fewer terminals, so there are extra steps involved.

In contrast, Old Dominion has the density to consolidate those trucks, ship them out to the furthest point, and deliver at that point.

You're comparing two different companies here. One is gigantic with a footprint throughout the US, while Mainfreight operates in select lanes and locations. They have to be more cautious about what they pick up because if they don't service that lane, they have to hand it off to another company, which can significantly increase their costs.

Could you explain the difference in cost? Let's take a pallet for example. What would be the cost difference if you hand it off to someone versus keeping it in your network?

The biggest factor here is what's called an 80-20 split. The carrier that picks it up gets 80% of the freight bill, while 20% goes to the alternative carriers. So, you're immediately losing 20% to 30% of that cost to handle that shipment if you hand it off to someone else. Old Dominion, for example, tries to service 90% of the country directly, so they don't lose that 20% to 30% margin to an alternative carrier. Mainfreight, on the other hand, sometimes hands it off to the point where they only get 50% of the bill. They have to cover that cost while handing the other 50% over to the other carrier. So, it's a very expensive cost compared to handling it directly.

Why is it so difficult for Mainfreight to quickly build out more density?

It takes time to build out density. You need to have customers in those locations, which means you need to have a terminal or a branch in that area. You need to have a balance of freight coming in and going out of that location to justify the cost.

For instance, if you have a lot of freight going into a location, it doesn't always justify building a branch. At Mainfreight, the terminal that has the outbound freight, say from LA to Chicago, will take about 70% of that revenue. The delivery branch will take around 30% for cost. They are really judged on outbound shipments compared to inbound shipments. So, there has to be a balance of revenue coming in and out of that location.

It's challenging for them because they need to have the business to justify hiring drivers, running a facility, and having employees there. Old Dominion has a bit more justification because they know where they're going to deliver and they're delivering to those locations on a daily or weekly basis anyway.

If you were in charge of a brand, how would you grow it? What's the process for acquiring more business?

The most crucial aspect is typically hiring experienced representatives who have established relationships in the area. You must market your services and build relationships. It's about attracting profitable accounts that align with your operational footprint, where your terminals are located. You need to find freight going to Atlanta, New York, California, San Francisco, and so on. It's about determining whether the area has freight going to these destinations and if it can sustain itself with enough business. You would hire sales reps, market your services, and hire drivers. Sales are what will drive this, but pricing and service are also key factors.

How does Old Dominion approach this differently?

Old Dominion, being an established company, has historical knowledge. If they're setting up a new location in Montana, for example, they know how much product is going into that location. They have historical data from their internal shipments in that area. They follow a similar model to others. They all hire sales reps that have worked in that field or in that region. And then they start heavily marketing and bringing on business that way by hiring experienced reps, paying them more money and creating a commission base where they say, if you bring on this many accounts, you're going to get bonused out at that point. So you create incentives to encourage people to sell that service and then it grows at that point.

What do customers care about? If your sales rep and three other LTL providers' reps are approaching the same customer, what would influence the customer's choice?

That's an excellent question. A lot of it is based on the relationship, but it ultimately comes down to four things. You've got technology, so are they able to quote it out, able to pull up online, or are they able to go through the process of finding out those details of that shipment, being able to quote it, track it, trace it, print it, and be able to invoice their customer at that point? Service wise, do they service that area? Do they not damage my freight? Do they provide a great service? Are they on time? Or how do they provide that service to me and my customers? Then there is price which is, you have a great service and stuff like that, but your price is 100 times more than everybody else, but you're trying to justify it. So you got to be competitive in price at that point. And then it goes back to relationship. Does that customer service provide follow up? Does the driver pick up the freight? Do they provide that service? But they also have that personalized service in the sense of they're competitive, they have technology, they're consistent. And then I like the people I'm working with at that point.

How is freight priced? How does Mainfreight price freight and how does Old Dominion do it differently?

All products are classified based on their type and density. Density is calculated by measuring the shipment and determining the product's actual density. For instance, if you have cotton balls that measure 48 x 40 x 96 and weigh 100 pounds, the density is approximately one. However, if you have bricks that measure 48 x 40 x 30, the density is around 30.

Carriers consider these factors when determining shipping costs. For example, a pallet of cotton balls may cost $400 to ship due to its size, while a denser product like bricks may cost less because additional products can be stacked on top. The cost of shipping is also influenced by the distance between the origin and destination.

For instance, if a shipment is going from California to New York, there's a baseline cost. The commodity, whether it's cotton balls or bricks, falls under a specific density and is assigned a base rate, say $300. Then, a discount is applied, say 80%, which is subtracted from the base rate to determine the final rate. Fuel costs are also added to the total.

Every zip code in the U.S. has a cost associated with it. The commodity also influences the cost. For example, cotton balls might have a baseline cost of $300, while bricks might be $150. Then, a discount is applied to these baseline costs.

Could you tell me when the pricing is decided? For instance, when a less-than-truckload truck arrives with pallets from multiple providers, when is the pricing for the next destination calculated?

Each shipment is treated separately. Whether you're shipping Nike shoes, Asics shoes, or Bosch appliances, each shipment is costed out based on the commodity, zip codes, weight, destination, and any additional services. The base cost for the truck is calculated first, say $20,000. The goal is to fill the truck to cover this cost, with any additional revenue being profit. Each account is priced out according to their specific freight profile.

For example, if we pick up a shipment in Long Beach and deliver it to Los Angeles, we calculate the cost based on these factors. The idea is to fill the truck to cover our costs and deliver the goods within the agreed timeframe.

The cost calculation is a bit different because it's determined at the first shipment pick-up. This is unlike the subsequent costs, which are already somewhat factored in. Then, they consolidate it and calculate the mean score.

So, if I understand correctly, if a pallet is going to pass through 10 warehouses before reaching its final destination, the cost is calculated at the outset in the first warehouse.

Yes, they calculate the cost at the beginning. This is where Old Dominion has an advantage because they know their costs. They've calculated it down to how long the driver is sitting at the pick-up, the delivery time, and how long it sat at the dock. They can break down the cost to a very precise point. On the other hand, Mainfreight is still learning this process. They're figuring out their costs, but they haven't determined the exact cost for everything. So, they might lose money on one shipment, or they might make a significant profit.

If we consider the economics of a single pallet or a single truck, whichever is easier, what are the costs involved? I understand the pricing side, but what about the costs?

The cost of a truck involves multiple factors. These include insurance, compliance, driver's salary, truck maintenance, taxes, sales rep, operations, and fuel. Essentially, it's the cost of operations such as the driver, dispatcher, sales rep, and the cost to pick up and deliver. So, you need to break it down to the cost per hour, cost per mile, driver cost, and the cost to operate the truck every day. Additionally, there's the overhead cost for marketing, sales, HR, and other employees besides the driver.

How do Mainfreight and Old Dominion differ in terms of trucks and drivers?

Mainfreight uses all independent drivers, or what they call owner-operators. They're not employees, but hired companies. For example, if it's Marcus's Trucking Company, they hire me, and I provide the drivers. In some cases, they own the trucks and lease them back to the drivers or the company. They put the Mainfreight logo on there as part of the service. On the other hand, Old Dominion's drivers are all employees. Old Dominion owns or leases the trucks themselves. So, in Mainfreight, everyone is independent except for the dispatcher, sales rep, and branch manager.

Why do they differ in terms of strategy on that front?

Employing drivers involves a larger upfront cost. This includes the liability, their health and benefits, and ensuring they have constant work because they are on your payroll. They are then the responsibility of the company. However, with independent owner-operators, they pay a higher fee to hire those drivers. This means you're not paying for their health and benefits, you have less liability, and your costs are slightly lower in terms of insurance and overhead. They are responsible for maintaining the trucks and providing the drivers. Essentially, you're hiring a different company to provide the driving service. In contrast, at Old Dominion, the drivers are employees. They report to the company, and you have to pay for their health, welfare, and vacation. They are more responsible in this arrangement.

How do these two strategies affect operations?

From an operations perspective, if you have enough work and can control your costs, employing drivers should provide better service. They are more responsible and have to show up to work to a certain degree. They are employees of Old Dominion. On the other hand, if they are owner-operators, you're contracting out the service. If a driver doesn't show up, they lose money, but it's not as much of a liability. They are incentivized to work harder because if they don't show up to work, they're not getting paid.

What about the level of service to the client?

If the service is good, clients shouldn't notice a difference. The one thing they might notice is consistency. For example, if they're an employee of Old Dominion, they might have the same driver on the same route every day or every week. In contrast, with Mainfreight, because they contract out the service, they might have a different driver. For instance, if Bob isn't available one day, Judy might be the driver. If Bob leaves the company, there will be a new driver, whereas with Old Dominion, it's likely to be the same driver most of the time.

How often does it happen that Mainfreight drivers don't show up because they've taken a more profitable freight or for other reasons?

They've managed to eliminate some of the inconsistency by having consistent drivers. They pay these drivers to be exclusive to them and try to get an agreement that they're exclusive to the company. For instance, they might contract out to Bob's Trucking, who will provide consistent service. However, there are times, about 20% of the time, when they might not have a driver available, but they can hire more drivers. This flexibility is a feature of the owner-operator model, which allows for quick hiring. In contrast, if you're an employee of a company, there's a limit to how many people you can hire on short notice. If you need more drivers, the owner-operator model is quicker and more flexible. If you're an employer and you have 100 employees, you can't just suddenly hire 20 more. Do you understand what I mean?

What's the downside then of using the owner-operator model? If it's cheaper and offers more flexibility and consistency.

The downside is the lack of stability. If they're employees, they're more stable and likely to show up every time. With the owner-operator model, there's no guarantee that they'll show up every day. Even with a contract, they're still independent contractors and they have the freedom to not show up for work. Employees are more likely to show up consistently and establish a routine. Independent owner-operators are not as tied to the company and some people don't like this because they're not employees, they're contracted workers. This can be difficult for some customers who prefer employees who are going to show up consistently and be contracted to a specific company, like Old Dominion, as opposed to Mainfreight, where there's uncertainty about whether the drivers will show up or not.

Let's consider a Mainfreight and an Old Dominion truck. Do they have any profitability Key Performance Indicators (KPIs) on a per truck basis?

Yes, all the trucks have a Key Performance Indicator (KPI) which includes their operating cost per hour, per mile, and the type and number of shipments required to achieve profitability. For instance, Old Dominion has a very precise system. They use dimensionalizers on their dock to know the exact size of the pallets going into the truck. This way, they know their cost basis and what they need to achieve to be profitable.

On the other hand, Mainfreight is still developing this system. They do have KPIs that help them determine what they need to do to be profitable. Unlike Old Dominion, which controls its costs by knowing exactly what it costs to move a truck or what their driver costs are, Mainfreight often uses purchased transportation. This means that even if they pick up a shipment in California, they might not move it on their own truck. They might contract out truckload providers to pick up the freight and move it to New York. Therefore, their cost basis is higher because they don't have contracted employees moving the freight as often.

How does the profitability of an average Old Dominion truck compare to a Mainfreight truck?

The profitability of a Mainfreight truck depends on various factors. Let's assume both are going to New York. If everything operates correctly for Mainfreight and all factors align, it should be cheaper because they have less overhead. For instance, a truck going from California to New Jersey would cost Old Dominion around $15,000.

For Mainfreight, the same journey might cost around $7,000. They calculate this based on the cost from pickup to delivery. On average, Old Dominion gets a 20% yield on their trucks. Mainfreight's yield is probably closer to 15%, but because their cost basis is lower and they have less overhead, they could potentially be as profitable. However, they have more requirements to meet to achieve this profitability. For instance, the shipment has to go to a specific lane and be picked up and delivered by Mainfreight. There are more restrictions with Mainfreight, so while it could be more profitable, it depends on filling up those trucks and being able to deliver to those locations.

Understood. From a customer's perspective, if I'm currently working with Old Dominion, what would it take for Mainfreight to win me over?

The difference between Old Dominion and Mainfreight comes down to price and service. On average, Old Dominion is 15% to 20% more expensive than Mainfreight. For instance, Old Dominion might charge $800 for a delivery from here to New York, which includes a significant profit margin. They promise to deliver without issues, on time, and with exceptional service. On the other hand, Mainfreight might offer to deliver the same package to New York for $700, but it will take three extra days. So, it's a question of whether the additional three days are worth saving $100. Mainfreight should deliver without any issues, but it will be a bit cheaper and take a bit longer. Old Dominion, however, will get the package there quicker, but at a premium.

How do the types of customers that both companies target differ?

Old Dominion prefers handling certain types of products, often referred to as a consumer product group, or CPG. These are items destined for grocery stores or club warehouses like Costco and Sam's Club. They focus on products that are palletized, measuring 48 x 40 inches, which can be moved in and out quickly and consistently.

Mainfreight tries to do the same, but they don't ship to many club warehouses. Instead, they focus on business-to-business (B2B) deliveries, also using 48 x 40-inch pallets. However, they are still in the process of building out this network.

Could you clarify what a club warehouse is?

A club warehouse is a membership-based warehouse, like Costco in the US. Customers pay an annual fee to shop there. They operate on high volumes, similar to Walmart, but customers pay a premium for the service, like at BJ's where they pay an annual fee of $100.

Who owns these warehouses?

Each warehouse is owned by a different company. For instance, Costco owns its own warehouses, as does BJ's. Sam's Club is owned by Walmart. They're similar to Walmart, but customers pay an annual fee of $100, and sometimes they get better discounts.

I understand. Why does Mainfreight focus on B2B?

The main reason is the requirement for density and the ability to handle high-volume shipments. These are very time-consuming but also high-volume, requiring a different level of service and operational finesse. Old Dominion has the volume and staffing to handle this. Mainfreight focuses more on B2B as it's simpler. A shipment's delivery time is 10 minutes, whereas delivering to a large retailer like Costco takes more time. They hold your equipment, and there are different costs involved. However, the volume makes up for it in the end. Mainfreight, still growing, doesn't have the density or staffing to handle these types of accounts yet.

If Mainfreight is a smaller, less dense company, how can it compete with Old Dominion at this stage?

Mainfreight competes by targeting specific customers that fall into their niche. They take certain segments of freight from certain customers. However, Mainfreight isn't a significant concern for Old Dominion because Old Dominion provides nationwide and regional services. If Old Dominion loses a little freight to Mainfreight, it's not a big deal. It won't significantly impact Old Dominion.

What is the niche of Mainfreight you're referring to?

Mainfreight excels in certain lanes. For example, California to Atlanta, California to Dallas, San Jose to Seattle. They can deliver at a lower cost than Old Dominion in these lanes. They can reduce costs for some customers by adding a day or two to the service. They can find a price point for certain customers, deliver damage-free, and provide a service similar to Old Dominion, but only in those specific lanes. So, their niche is providing good service at a lower cost in specific lanes.

How do both companies measure success with their customers?

From a corporate perspective, profitability and operations are key. Each company evaluates the operating ratio of an account. If the account is consistently growing, handling more business in desired lanes, operating correctly, and delivering as promised, then customers value this growth. For instance, if the operating ratio of a customer is 80% and we're fine-tuning it, we're extracting more profitable freight from this account. The same applies to Mainfreight. They conduct a weekly budget call, assessing each account. If we're handling it correctly, doing cost evaluations, receiving the right freight, and growing each month, then Mainfreight and Old Dominion will consider selling them additional services like truckload, air freight, and warehousing. This is how they measure success.

How does the communication occur between the transport business and the two other divisions at Mainfreight?

Each division operates independently. They're trying to create a culture of collaboration. In the past, divisions like warehousing operated in isolation, not concerning themselves with transportation and international business. They've shifted this culture to encourage collaboration, as international shipments often require road transport and warehousing services. They're learning how to share resources and expand within the organization, rather than just selling their transportation. There's still some resistance, with some people wanting to handle international aspects alone, but they're overcoming these objections.

Are they improving in this aspect?

Yes, they are. They're realizing the benefits of collaboration. For example, if they're handling a domestic account and discover that the client imports all their products from China, they can bring in their international team to foster growth and seize more opportunities. They're seeing success in this approach. It's like, why not collaborate on this account, bring in more people, and win more business? They have weekly meetings to discuss collaborations. For instance, Marcus might collaborate with John on International and Kobe on warehousing. Now we have an account that's touching three branches, and it's becoming a successful, profitable account. Each division has to operate profitably, be it warehousing, international, or transportation. Each one is judged in this way. But the question is, how do we devise a plan to bring in more business?

What is Mainfreight lacking today to become as proficient as Old Dominion?

I believe there are several factors that need to be addressed. One thing that Old Dominion has is a nationwide operating goal and pricing structure. They have a centralized product, with set operating and cost goals, which each branch can adapt to provide different services. They have a national growth mindset and focus on profitability.

Mainfreight, on the other hand, is highly decentralized. They encourage each branch to operate entrepreneurially and control their pricing. This can lead to inconsistencies across branches. For example, a branch might charge $300 for a delivery one week, then $500 the next week for the same service due to fluctuating resources.

What Mainfreight needs is a balance between entrepreneurial freedom and centralized leadership. They need pricing discipline across all branches and a centralized cost basis. If they continue on their current path, they can only control their costs to a certain extent.

Another issue is that they often bring in people from Australia who don't fully understand the US market. They try to implement Australian strategies in the US, which can be detrimental. The leaders they bring in may be experts in Australia, but not in the US. This lack of understanding of the US market can hinder their growth.

What specifically do they not understand?

Specifically, they (Mainfreight) struggle with pricing and service delivery in the US market. They also have difficulty understanding the US domestic transportation business compared to the Australian system. The scale is vastly different, with 20 million people in Australia versus 400 million in the US, not to mention the differences in traffic, trucks, and regulations.

The US is heavily regulated. There are rules and regulations for everything, including hours of service and what can be picked up or not. We regulate everything. In contrast, Australia also has regulations, but not to the degree we do in the US.

How does this affect Mainfreight's operations from what you've observed?

It creates some inefficiencies. In some ways, it's a negative, but it can also be a positive. Different viewpoints and ideas can bring a different mentality, a "can-do" attitude, which is positive. However, the downside is the learning curve they have to overcome, compared to someone who has operated in the US, knows the rules, regulations, and how to work within those parameters profitably.

They have to learn not only about the US but also how to operate within it, and how to work with its rules and regulations. It's a different mentality where they're applying decentralized Australian ideas that each branch should be a profit center. In contrast, companies like Old Dominion and ABF focus on being profitable across the US. Each branch needs to be profitable, but it's not about weekly P&L. It's about operating on a 30-day basis to understand costs. It's a different mentality, which isn't necessarily negative, but it could slow down their growth as they introduce a different mentality and have to overcome it.

One last quick question. When you mentioned yield and said that an Old Dominion truck would have a 20% to 30% yield, while a Mainfreight truck would have around 15%, could you clarify what you mean by yield?

Yield refers to profitability, or the operating ratio. Each truck, for example, picking up in California, needs to calculate the cost to move that truck all the way to New Jersey. This includes the cost of the freight, the driver, and other related expenses. The yield is the profit from this operation.

For instance, if my cost is $17,000 and I make $20,000, the profit, or yield, is $3,000. The goal is to maximize the space in each truck. If I can put more pallets in the truck without damaging the product, pick it up in California, move it to New Jersey, and get $30,000 out of that truck instead of $20,000, then that increases the yield.

It's about getting the right freight mix, the right size, density, and destination. It's also about consistency. For example, you may have 15 pallets going to a location one week, and then 30 the next. The challenge is figuring out how to maintain a consistent amount of business going to that location to keep the yield at $30,000 instead of $20,000.

Essentially, the yield is the profit per truck in relation to the total cost of moving the freight.

Precisely. The yield is your profit. How much yield or profit did you gain from that shipment? Some might say they got $20,000. However, you must deduct the cost to move that $20,000 or that truck. So, what is your yield? What did you actually gain from moving that truck from here to New Jersey?

It's often challenging to find out information. Some people are used to providing information, but you need to dissect it a bit. For instance, he's wondering why Mainfreight is in its current position. It's a great company, but with some improvements, it could be even better. On the other hand, Old Dominion is established and will continue optimizing their operations to reduce costs. Their yield keeps increasing, and they know they provide such good service that they can charge 20% higher than everyone else. They have that confidence because they know they provide excellent service.