BOLTON, Ont. – Improving rates and the ability to add capacity in a driver-starved market were two of the reasons Titanium Transportation Group was able to achieve record revenue and profit in the second quarter.
Speaking to analysts about Q2 and first half 2018 results, chief executive officer Ted Daniel revealed the acquisition of Xpress Group added $4 million in revenue, rate increases contributed $2.5 million and volume growth added $1.5 million. The company was able to add 40 drivers in the first half of 2018, while many competitors struggled to add capacity.
Daniel believes industry conditions will remain strong.
“Seasonality tends to benefit Q2 more significantly than any other quarter, however industry conditions remain positive and we are well positioned to respond to increased customer demands,” he said. “These are fairly strong economic times in the trucking industry.”
He said the ingredients driving the trucking industry’s prosperity – the driver shortage, rising freight volumes, and a looming electronic logging device (ELD) mandate in Canada, to name a few – will not be resolved anytime soon. He’s not concerned that record truck and trailer orders will resolve capacity tightness.
“That is not producing a driver,” he noted. “I don’t see capacity being resolved any time soon…I believe market conditions over the next 18-24 months are going to be fairly strong.”
The following are some highlights from Titanium’s conference call with analysts:
On mergers & acquisitions
Despite strong organic growth in the first half of 2018, Daniel said mergers and acquisitions are still in the cards.
“I believe M&A is an integral part of who we are. I like doing M&A. We’re good at it, and we are very actively looking at leads all the time but we are a little selective,” he said.
He said the latest acquisition – Xpress Group in Windsor – has been successful.
“That terminal is humming now like a Swiss watch,” he said of the Windsor operations.
Daniel expects to see more M&A in the industry over the next 18-24 months, as EBITDA margins improve industry-wide, making it a better time for potential sellers to exit the industry.
Titanium achieved significant increases to contract rates in 2018 and expects price increases to moderate, but continue into 2019. Daniel said customers were largely receptive to the increases.
“I don’t think we have any customers that haven’t been affected by the new pricing scenario,” Daniel said. “Customers have been very supportive. We’ve grown with most of our customers.”
Chief operating officer Marilyn Daniel said this year’s prices increases reflected a needed correction and that the driver shortage, tight capacity and the ELD mandate “will continue to have a strong influence on rates in the near future.”
On finding drivers
Titanium management said the company planned very strategically ahead of the current boom to refresh its fleet and prepare to bring on more drivers. It cites its share purchase plan as a key differentiator in the market, as well as good pay rates and steady business. The company was able to add 40 drivers net in the first half and plans to continue doing so.
“We will continue to target growth,” Ted Daniel said. “The minute someone starts with us, we are able to keep them busy immediately.”
Marilyn Daniel agreed, “If we are able to grow our driver group, we have the work to go with it.”
She said Titanium is also looking at ways to attract younger drivers into the industry. The Windsor terminal allows for shorter runs and the company continues to invest in top equipment, safety systems, maintenance and other technologies that improve driver lifestyle.
“We are always looking at what incentives we have to bring drivers into the marketplace, which may include in the future perhaps immigration issues or new driver training programs,” she added.
On tariffs and trade wars
So far, talks of tariffs and trade wars with the U.S. have not had an impact on Titanium’s business, Ted Daniel said. But since two-thirds of the fleet’s business is cross-border, he added it’s a situation the company is closely monitoring.
“When I’m speaking to customers, most customers expect the tariffs and NAFTA changes to affect the end user more than anyone else,” Marilyn Daniel added, noting most Canadian manufacturers are so entrenched here it could take them up to a decade to make drastic changes.
“We have to stay close to industry and act nimbly in terms of where they move their product. Cross-border or domestically, freight still moves – it’s just which direction is it moving in?” she reasoned.
Titanium plans to continue eyeing strategic M&A opportunities, and in the meantime to recruit new drivers and add capacity. The company said it has build slots booked for Class 8 trucks if it can find the drivers. It may also be adding more trailers in 2019. It was able to avoid that this year due to improved utilization.
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