Dive Brief:
- Old Dominion Freight Line could exceed its $300 million budget for service network expansion for this year, President and CEO Greg Gantt said during a Q1 earnings call.
- Gantt cited a roughly 20% increase in materials costs as one reason. "The cost of everything, be it concrete, steel, any and all materials, has definitely increased," he said.
- High real estate prices, too, will likely contribute to the company's spending on its service center network. "I can tell you, with the price of land nowadays, that we can reach that budget pretty doggone quick," Gantt said.
Dive Insight:
Old Dominion has spent north of $1.8 billion in the past decade to grow its network of service centers across the country, Gantt said during a Q4 earnings call.
The reason? "We simply never want our service center network to be a limiting factor to growth," Gantt said during the February call.
The LTL industry, while booming in recent years, lacks capacity to meet the market's demand — and Old Dominion sees opportunity in chasing that additional business. The carrier is pursuing a goal of 20%-25% excess capacity. It currently has about 15%-20%, Gantt said.
Amid widespread supply chain challenges, providing service center capacity to support customers’ growth "has been and remains an integral piece of our value proposition," Gantt said.
Old Dominion has coupled its network growth with investments in hiring, equipment and technology. It grew its full-time employee base by 18.5% in Q1, and it plans to spend $485 million this year on equipment, while anticipating fewer trucks than ordered. It plans $40 million in IT spending in 2022.
The carrier has opened six new service centers since the beginning of the year. Half of them are in new markets for Old Dominion (Byhalia, Miss.; Westfield, Mass.; and Lakeview, Minn.), while the other three are new facilities in existing markets (West Columbia, S.C.; Mason City, Iowa; and Grand Rapids, Mich.), according to a spokesperson.
Old Dominion had planned to open 8-10 new service centers this year. It could be more than that, Gantt said, noting "we'll just have to see what opportunities present themselves."
The expansion strategy appears to be paying off: Old Dominion's LTL revenues shot up 33% YoY in Q1, as it continued to grow its footprint, opening or expanding seven service centers in the past two quarters alone.
Old Dominion has 254 service centers across the lower 48 states.
The company's $300 million budget for expansion includes increasing the number of doors at existing locations alongside real estate purchases for new service centers, CFO Adam Satterfield said.
"Our expectation is to continue to produce growth," Satterfield said. "And the piece of the capacity equation that you always have to look at is on the service center side: It takes doors to process freight within LTL."
