Forward Air Corp (FWRD) Q4 2020 Earnings Call Transcript

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Forward Air Corp (FWRD -4.69%)
Q4 2020 Earnings Call
Feb 12, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for joining Forward Air Corporation's Fourth Quarter 2020 Earnings Release Conference Call. Before we begin, I would like to point out that both the press release and webcast presentation for this call are accessible on the Investor Relations section of Forward Air's website at www.forwardaircorp.com. With us this morning are CEO, Tom Schmitt; and CFO, Mike Morris. By now, you should have received the press release announcing our fourth quarter 2020 results, which was furnished to the SEC on Form 8-K and on the wire yesterday after market close.

Please be aware that during this conference call, we will be making forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, about the effects of our business efforts on each of our businesses; the future plan of our Pool business; steps to expand our operations organically and inorganically; the Company's outlook for first quarter and fiscal year of 2021, including expectations for revenues, tonnage, net income per diluted share, free cash flows and operating margins; the expected impact of growth and strategic initiatives and those other forward-looking statements identified in the presentation.

These statements are based on current information and our current expectations. As such, they are subject to risks and other factors that may cause actual operations and results to differ materially from the results discussed in the forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the Securities and Exchange Commission and the press release and webcast presentation relating to this earnings call. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

And now, I'll turn the call over to Tom Schmitt, CEO of Forward Air.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Thank you, Grace, and good morning to all of you on the call with us. I want to go with our first things first, and that's a heartfelt thank you to all of our teammates, drivers, customers and other business partners. You all celebrated the holidays this year a little bit differently from our normal, and in actual fact you brought all of our business back from an invasive cyber attack and made very certain that we still kept all of our customer commitments. So, thank you for that and for our customers and team Forward going side by side, making for a clean entry ramp into 2021.

Before I go into that 2021 entry ramp, just briefly back, the last time you were on this call in October, I made six commitments and talked about how we are keeping those commitments along density, more essential freight. In fact, in December, 20% of our new closed business in LTL was medical supplies. Pricing actions we took a number of temporary and permanent ones. Organic expansion. Number 5 was no pause in accretive M&A. And Number 6 was our precision execution with record service levels in a very tight holiday period.

Let me take commitments this time and take that entry ramp into 2021 and share five observations with you that make me very, very confident for our journey toward our double-double, double-digit annual growth rate and double-digit margins. The first observation is a strong off-ramp. For you to have a strong on-ramp into 2021, you need a strong off-ramp up of 2020. If you look at our fourth quarter, the first 10 weeks of that fourth quarter, we're clean. They weren't operational beat. And that's the type of clean operations performance we are taking into 2021.

Secondly, we have early momentum. January is very strong. We showed, in our core LTL business, daily tonnage 10.9% up year-over-year in January. LTL shipments up 14.4% over 2020.

Three, we had a very, very strong general rate increase. I oftentimes say there's three things that are certain every year: Christmas, Easter and the rate increase. Our Christmas might have been a bit different this year, as I mentioned before, but we did have a rate increase. And across all of our lines of business, and in LTL, just 10 days ago on February 1, it's always the first Monday in February, which makes it very predictable for our customers. It allows us to invest in our driver safety customer service to keep those customer commitments I talked about earlier. This year, we had a 6% rate increase in LTL, and the strongest capture rate that I've ever seen, which means minimum exceptions and exemptions.

Four, an observation around continued organic momentum beyond those volumes I mentioned and beyond the GRI I just mentioned. We added six new terminals in LTL last year. We're going to continue investing in our LTL core footprint. There's more than six that we will be adding on this year, making sure we provide more access points to our current and new customers.

Also, our other business units are organically doing extremely well. Final Mile continues to be on a tear, and we have strong truckload and Intermodal momentum. Also when you look around left and right, it looks like Chinese New Year. This year is more like a working period versus a period off. And then you look outside the LA port and you see 200,000 containers just waiting to even get onto the port. So, the tight volumes or the strong volumes will be going on for quite a while.

Number 5 and the last observation I want to share in terms of a strong entry ramp into 2021 is inorganic precision execution. We signed, as you saw in the release, another strong intermodal tuck-in, giving us more access to more geographies in the Midwest. Proficient is a great company, first-class service, that's what they known for, which is the exact DNA that we want to have on our team. And they're going to be a great addition to our team.

Inorganic also means sometimes a graduation. As we're sitting here right now, we actually did close the sale of our Pool business. Pool does fit with our narrative. It is very tight time windows. It's service handling that must be perfect. What did not fit with the Pool business was the asset-lightness that we have across our portfolio. Pool is heavier.

I had almost -- always made the commitment to our team and to our customers that we are going to graduate Pool, only if and when we have an owner whose main show that will be and who will actually be fully investing into this business. We found just that owner, Ten Oaks. And we closed the sale last night, and I'm super confident that the team will continue doing what they've done so far, which is being the best in the retail distribution business, getting into other verticals and they're going to do exactly what our customers expect and more.

Finally, before I turn it back over to Grace, the operator, I wanted to say our entire Forward Air team and I personally, we will be laser-sharp keeping the main thing the main thing, precision execution of a very clear beyond 2019 roadmap, double-double for maximum shareholder value. And as I said, we're going to mix it up a little bit. We want to make sure there's maximum time for an exchange here.

So, I was going to go straight to Q&A. And with that, Grace, let's do that and open the lines.

Questions and Answers:

Operator

Thank you. The floor is now open for questions and comments. [Operator Instructions] And our first question is from Bruce Chan with Stifel. Please go ahead.

J. Bruce Chan -- Stifel -- Analyst

Tom and Mike, good morning, and really appreciate the format here. I want to start off with Pool. It's great to see the sale there. But when I think back to the acquisition of that business or of TQI, I think some of the motivations and the outlook for diversification and growth that was the same as, maybe it is now for the final mile business. And I know it wasn't during your tenure. But when you think back to USA Carriers or Pool and when you think back to TQI, what were the differences with those businesses versus kind of what you're doing now with some of your other growth strategies in final mile. I know Tom you already addressed some of the asset-heavy nature of Pool. But is there anything that you learned with those acquisitions that you can kind of take and apply to what is now in final mile?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yes, I think Bruce -- first of all, good morning and good to have you with us. I think fundamentally there, if you look at final mile, it's by itself a high growth business. Gardner actually says, it's going to grow in the high single digits for many years to come. We are participating in that growth. We also, I think, do have a special sauce with final mile. We are in the revenue capture side. We're working with some of the best retailers, and we're going to make very certain, Bruce, when you order that fridge that the kitchen floor will not be scratched. And we are going to maintain and enhance that customer relationship that you have with that world-class retailer, and they're paying us a premium for that.

As long as we can do that, and then operationally, we get synergies out of our local LTL team and final mile, which oftentimes they use the same buildings, oftentimes they call route on a light installation date. You might sometimes see the installation crew picking up or dropping off a few LTL pallets. So once you see that revenue capture at a premium level and once you see the operational synergies with the LTL business locally, you got a secret sauce, where I say I like those types of margins on an ongoing basis. So, that's what's special about the final mile business..

Truckload, by the way, same over the road synergies with our LTL business. One fleet that's being recruited for two sets of services, sometimes in LTL drive out and truckload drive back. So, a lots of synergies there also.

On the intermodal drayage side, a strong second leg, some back office synergies, SG&A. Also some customer sharing, where we actually cross-sell between intermodal and some of the other services. And to be very blunt about intermodal, I believe in terms of odds toward a double-double. I like the odds for the intermodal team every single year. And it's a business that actually returns -- brings a return to our shareholders way above our cost of capital. So, those are the things you have to look at.

And Bruce, when you do a kind of all good old school Michael Porter analysis in terms of customer pressure, supplier pressure, future of the brick-and-mortar retail industry, we have the best in the business. I do believe they will be growing successfully for an owner that's fully focused on it. There is still market share and untapped upside. But in terms of what I just talked about secret sauce that the risk-reward profile in double-digit territory and asset-lightness of our entire portfolio, we got with the Pool business that's something that fit the narrative, but did not fit the profile financially.

J. Bruce Chan -- Stifel -- Analyst

Okay, great. That's good color. And then, just to be very clear, you are keeping the truckload business that's getting integrated and you're finding synergies there on the linehaul side. Are there any other levers that you can pull to rightsize and improve that business outside of the integration of the linehaul networks?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yes. So, Bruce to be very clear, the expedited freight business is a wonderful beautiful interplay more and more between, as I said, final mile and LTL, mostly locally in truckload and LTL, as you just said Bruce over the road. On the recruiting side and on the selling side, TL and LTL benefit from each other a lot. We are also getting more and more into the truckload brokerage space, another hugely asset-light space with tremendous margin potential.

J. Bruce Chan -- Stifel -- Analyst

Okay, great. And then just one last one here before I turn it back to the queue. Tom, really since you started at Forward Air, you've kind of made it your mission or at least part of your mission to kind of move the notch up on pricing. You said to expect GRI as like you expect Christmas and Easter. And that's been great. But certainly, for a premium product, Forward Air might be able to exact or extract even more pricing. So as you think about some of the new technology tools that you're implementing as you kind of wrap up with TCG, is there more opportunity to get even more aggressive there?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

To use, and I hope I can do that legally without getting slapped on my hand, Nike's terms, this is going to be -- being excellent in pricing, it's going to be a race without a finish line. So, we have gotten much better. Bruce, you mentioned the tools. We also are hiring significant expertise by getting great exports in the LTL class space on our team. And so, between the tools and the people, we're getting better and better.

If you take pricing LTL, over the last year, we got much more sophisticated. Where does it take special handling? Which geographies are congested? And we need to make sure we get an extra premium to invest into drivers in that area. Then, we also looked at specific customer segments, very different airport-to-airport, door-to-door customer segments. Now we're getting heavy into length of haul to make sure that we actually equally competitively pricing no matter whether it's a short move or whether it's a move all across the country from Atlanta to Seattle, Washington.

So, that type of ongoing consistent dynamic pricing discipline we need to make sure we actually keep ramping up. Pricing is one of the core disciplines that we have to be perfect in or close to perfect. I was very, very fortunate going back to my FedEx days on the parcel side and then even my McKinsey days before that with some of the railroads, I learned about the horsepower and the absolute must of being terrific in pricing. We're getting better and better. But as I said, there is untapped upside, and we're going to make sure we're going to tap that upside.

J. Bruce Chan -- Stifel -- Analyst

Okay, great. Thank you for the time. I'll hop back in queue.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Thanks, Bruce, and thanks for the conference this week.

Operator

Thank you. And next, we go to the line of Jack Atkins with Stephens Incorporated. Please go ahead.

Wade Schaller -- Stephens -- Analyst

Morning, Tom and Mike. You've got Wade Schaller on for Jack this morning. Thanks for taking our questions.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

That's what I call an upgrade, Wade.

Wade Schaller -- Stephens -- Analyst

I won't tell them that. On the LTL network, I believe you mentioned at least six terminals this year. How many of those are new markets? How many of those are additions to bolster density in existing or underserved markets? And what do you expect the impact of those additions to be this year?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yeah, it's -- this is a math exercise to a large part. A lot of what you do in our precision execution business is a math exercise. So what we're doing here -- and the answer, Wade, very specifically, is it's going to be a combination of a greenfield locations like last year we had in Ontario, Inland Empire, which is doing terrifically well. It's already up to a significant portion of our Southern California volume. And we're going to do some agency into own operation conversions. We're going to do some final mile LTL co-locations the way I just talked about a few minutes ago. So if you think of eight or 10 new locations this year, it's going to be a combination of those.

Now how do we get to them? It is also a math exercise. The first thing is our current customer base, especially telling us we have origin freight in the following locations where there is no Forward Air presence. Secondly, if you look left and right to some of the large class freight LTL players, they have in some cases twice, and in some cases 2.5 times the number of access points that we have. There is certainly, sometimes you learn from people when you look left and right.

Third, we do have access to LTL class rate data, so we know the flows across the U.S. and across Canada. So, we also know where we frankly are less present than we should be. And then, once you see those shortfalls against current customer demands or against possibility of trade flows, then you say, OK, let's look around our network. The easiest ones are the co-location with a final mile location. We have almost 100 final mile locations. Some of them in cities that -- where we don't have an LTL terminal. So, that's an easy add because you basically utilize the space that's already there.

Agency conversions tell you how much volume you can actually start with. So, that's another easy one. The greenfield ones like the Inland Empire and Fontana last year, those are the ones that are a bit harder. But again between those demand points from our current customer base and accessible freight data and our ease of implementation between agencies, core location with final mile terminals, it's fairly easy to do math exercise. And the answer, Wade, back to your initial question is, it's going to be a combination of those three things: agency conversions, co-locations with final mile, and thirdly greenfield.

Wade Schaller -- Stephens -- Analyst

Okay, great. That's very helpful. I want to switch gears to intermodal, if I could and dig in on Proficient, and more broadly, I guess the work that you've been doing over the last year in the intermodal piece of the business. Could you speak to the strategic importance or value of a national intermodal drayage network and what sorts of scale benefits you derive from that?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yes. So intermodal is, for the most part, a regional and multi-regional business. Some of our customers do ask us to be more nationally present. So, you have a bit of that weight, where some of the decision-making is truly national and the more national presence helps. For instance in the North West is something where we would love to be a bit more present, and certainly are looking toward that. But fundamentally, the intermodal drayage business for us is very similar and very much a fit for the Forward DNA.

When you talk about Forward DNA, that's what I call precision execution for something that's bigger than a box. And what does that mean? It means fastest transit times. It means best sensitive handling and lowest damage ratios. Now, when you think about intermodal drayage, you may not initially think about those exact adjectives. But once you actually understand these are premium products we are hauling and they came typically over the ocean 14 days, 15 days, 16 days and whoops it took two days longer this time, then they sit in the port, wait for a few more days, get on the railcar and you may end up being six days versus four.

Once it gets into that railhead, all of the slack in that supply chain is more than used up. Those goods need to be going to the DCs and ultimately to the stores, because every extra day lost is another day lost in the selling season for that particular product. So in that particular way, our intermodal drayage is a premium service that fits that exact precision execution DNA for something that's bigger than a box where those adjectives are actually required, and frankly, where our customers are paying for their premium service, which is going back to what I said the odds of that being a above capital cost ROIC business at a permanent double-double are tremendously high and that's our job to deliver that.

Wade Schaller -- Stephens -- Analyst

Awesome. That's it from me. Thanks so much.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Okay. Thanks, Wade.

Operator

Thank you. Next we'll go to the line of Scott Group with Wolfe Research. Please go ahead.

Scott H. Group -- Wolfe Research -- Analyst

Hey. Thanks. Good morning, guys.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Good morning, Scott.

Scott H. Group -- Wolfe Research -- Analyst

I want to ask about the margins on the expedited business. So, you're at a, I guess, a 7% last year and you're saying you can go to a 10%. And you've got someone out there saying that it should be closer to 20%. I know there's been a lot of mix changes in the business from 10 years, 15 years ago. I guess what do you think is possible here in terms of where these margins can go and maybe help us think about how the mix was changed and what that means for LTL margins, non-LTL margins within the business?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yes. Scott, I think you summarized it quite well. Let me start, and then I'm going to ask Mike to tag team here with me. So when you go back to like 15 years, 20 years ago, when our business was exclusively in airport-to-airport business, we had the types of margins that you referring to. The TAM, the total addressable market, of airport-to-airport has actually gotten smaller over the last two decades, not bigger. Some of our core customers actually did a smart thing. They built out their own lanes where they were dense. And then there's also competitors that actually started showing up quite visibly in the airport-to-airport space.

So that was a wonderful market, and will always remain the core because that's frankly where we train that muscle of precision execution, and that's where we still are shooting for the types of margins that you described. We are augmenting it with a door-to-door stretching into spaces, where our customers are asking us to go to, where we also believe double-digit margins are possible.

To answer your question very specifically, LTL, I believe and Mike you should either confirm or correct there should be a mid double-digit or 15% business for us. So, we're actually getting better, better and better on value creation and value capture for those stretches beyond airport-to-airport, because we have a strong belief that in that $40 billion plus LTL market, there's at least 10% of that, $4 billion, probably more than that. That's the type of premium LTL that fits those criteria I talked about before, sensitive handling, fastest transit times, lowest damage ratios. And those are the ones we're stretching into with our Grow Forward program that finds, keeps and expands beyond airport-to-airport in margin territory that should get us to that 15% margin I've been talking about.

Mike, anything you want to add?

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes, no, I mean, I think you hit on it math -- I mean, Scott. Some of the math, just to unpack it, as we've done in the past. My career here, LTL has been 14% -- 13.5% type margin business. Obviously, 2020 was rough with COVID. We ended 2020 rough with the cyber. But getting that back to a 15% and then look at north of a 15% is really critical to hitting the double-double and getting expedited freight as a whole to a 10% margin.

Truckload needs to get in the 5%-plus margin range. And we feel like final mile can be in that 7% to 10% -- 8% to 10% margin range, which is where it's been. If you were to just doing some math, not making excuses, just explaining. If you were to add back the effect of the cyber impact in the fourth quarter and the FSA earnout accrual and try to look at a more steady state, expedited freight margin would be 9% for the fourth quarter. Not there yet. A lot of work to do, but it does seem like something that we can certainly get to. And if you marry that up with intermodal and if you stay safe, which is where we have some of the insurance impacts in other operations, then you can kind of have the whole thing add together for that second double.

Scott H. Group -- Wolfe Research -- Analyst

Okay. That's helpful. I'd like to just stay on this, because I think it's the important thing right now. So you mentioned -- so LTL -- is that -- where is that today and where do you think that can go? Truckload, you said you want to get to 5%. Where is that today? Final mile 7% or 8%, where is that today?

Michael J. Morris -- Chief Financial Officer and Treasurer

I'm giving you a general sense of direction, because we disclose these as one SEC segment. We don't break out the margins of the individuals. But in order -- in general direction, trending back where we've been historically on LTL, getting there on truckload to the numbers that I just described and probably closer, if not already there on final mile, if I can offer you that transparency.

Scott H. Group -- Wolfe Research -- Analyst

Okay. And then, just on the LTL side, can you -- is there a reason why we're talking about 14% or 15% for LTL and not that historical 20%? I understand the mix shift. We've got more truckload than final mile now, but why do you think the LTL business cannot get back to the 20% that it used to be at?

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes. Just to be clear, that's kind of where we need to get to get to the next level. So once we are standing on that platform at 15%-ish margin, then we kind of take the next step to the summit, if you will. But I'm just trying to communicate it in terms of what do you need to do to get expedited freight to 10%? [Phonetic] Well, I got to get at least here. That doesn't mean we have to stop there.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

And let me just add to that, Scott. It takes -- so it is what we're shooting for. That's the next level, as Mike talked about. A double-double is a milestone, not a destination. If you define double-double as 10% [Phonetic], that's an interim step. But to be very clear, it takes a lot of precision execution work by customer segment stretches by door-to-door as a longer line -- longer haul.

If you do the math and say we like the airport-to-airport 18% margins when it was a $350 million business, we multiply it by six and all we do is that, that's not going to work. So, we have to stretch and still then capture the slides of the value that we're creating that has the same type of premium profile that the core airport-to-airport business always has and will have for us.

So, but -- clearly, Scott, what you're aspiring to is what -- where we are heading toward. And that's again a 10% for expedited freight and for the Company overall is a milestone, not to final destination.

Scott H. Group -- Wolfe Research -- Analyst

Okay, great. And then, just my last one. So pricing is certainly going to help. What about on the purchase transportation side. That's where you've seen the biggest sort of margin pressure over time. What if anything are you going to do differently on the PT side? Or is there another driver of the margin expansion on the cost side?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

So, those are the two questions at the end. So, yes, there are other drivers on margin expansion. PT is a big one though, Scott. And you know as well as I do. So just to be very clear, over the last several years, purchase transportation with the exception of 2018, which was a small spike up, I just talked yesterday with our Chief People Officer, Carl, I mentioned about the stats. Over the last several years, we were in either single-digit territory or in low -- in the low teens. Why is that? Because we actually make every single day driver appreciation day. What I mean by that is we engage them, we manage for their priorities like predictable home times like short distance -- short dispatch wait times when they call. And we make this like a great professional home, which helps tremendously for our driver attraction and our driver retention.

With the exception of Southern California and California overall, we still in single-digit territory for purchase transportation. We need to make sure we get fully compensated for the congestion and the difficulty of getting drivers in California roll over that, but at the same time, the big steps that we have made with the driver board. And I mentioned this before, there's like 12 representative drivers who represent thousands of our independent contractors.

We meet with them regularly. The next meeting is next week. And we listen to their concerns. We did a survey with 4,000 of them a couple of years ago, and we are managing toward the things that are matter most to them. Every day is driver appreciation day. So, the PT is in the single-digit territory, and has to be for that margin expansion to become a reality that we talked about and we are in a very good path there. The team has done a -- and this is from operations to safety to our people team has done a tremendous job making this a first-class professional home for our drivers.

Scott H. Group -- Wolfe Research -- Analyst

Okay. Thank you for the time guys. Appreciate it.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Thank you, Scott.

Operator

Thank you. And next, we go to the line of Tyler Brown with Raymond James. Please go ahead.

Tyler Brown -- Raymond James -- Analyst

Hi. Good morning, guys.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Good morning, Tyler.

Tyler Brown -- Raymond James -- Analyst

Hi. So, I agree with Scott. It does feel like margins are the key here. So -- and I just want to be clear, but when we try to build that bridge to the mid-teens, so the drivers are really, one, managing PT; two, probably going through another robust year of pricing. Then you mentioned some other things. Can you give a little more detail there when we try to build that bridge?

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes, I think you look where the costs are going to numerically pop up. So, it's not [Phonetic] in things like utilities and what not. Operating safely and having more technology and data-driven decision-making around safety at the front-end of recruiting, coaching, informing because in our history, some of the margin pressure has been related to incidents.

When I joined, we had a $0.5 million SIR, self-insured retention. I think it was lower prior to that. It's $10 million right now, and that's the insurance market. That's not our decision. We would love to buy the type of insurance we used to be able to buy. And so, that hits our P&L and not an insurer's P&L. That has been a big number. We don't like non-GAAP or anything because it's our responsibility. But nonetheless, that's an important component.

Also, an important component is some of the integrations that we've described. The LTL fleet grew by the truckload fleet and the truckload fleet grew by the LTL fleet when they became one. The degrees of freedom that offers us not only in terms of avoiding outside miles, but in terms of recruitment and retention and operating efficiency. These are -- we are able to give our drivers points of flexibility that they may not find elsewhere. And that helps us recruit and retain them.

Tom gave an example, LTL out truckload back. There's lots of ways we're using that. We saw that in COVID. We were able -- we didn't have loads for drivers in truckload and LTL. And we were able to give them truckload. Brokerage kind of playing a role along with core linehaul right at the Number 1 cost lever that we've been talking about on PT.

The final mile, we are co-mingling pickup and delivery in 15 markets currently. That's growing rapidly. That gives us the opportunity to kind of have the best of both on LTL and final mile pickup and delivery. As we have more terminal cohabitation, you're able to spread the fixed costs of that terminal between the two modes that helps lower unit costs for both. These are some of the other things operationally, which are happening in the world. And that's why we report this segment as we did because it is how the business is being run. We are treating this and operating this as an integrated combination, but the benefits of these should inure to LTL, given the greater variable cost model of the other modes.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

And Tyler, let me just add to that, and then back to you in a moment. But -- so, we mentioned or you mentioned actually purchase transportation, big lever of pricing. And I cannot overstate the importance of making sure we captured a slice of the value that we're creating for our customers. And this is going to be that race without a finish line.

Mike, you added safety. Obviously, because it's the right and the first -- the most important thing to do. It's also -- it also has not only human, which is the first job, but also financial consequences. Operations efficiency and you got to some of that by the co-mingling. We talked about the co-routing on the final mile and LTL side locally. Operations efficiency is something that we're always stepping up on inside our buildings and across the road.

It does help that we have a team, Chris Rubell is our COO and a very, very seasoned team that knows how to go after these efficiencies. I personally have got a background in this at my previous employer. We ran a global performance operations enhancement program that ended up making the contract logistics unit there at the most profitable and fastest-growing of the large ones in the world. So, we do have to pull that lever obviously also as a race without a finish line. So, but we mentioned your first two, and then we just add to -- in addition to purchase transportation and pricing, safety and operations efficiencies.

Tyler Brown -- Raymond James -- Analyst

Okay. And then, you talked about integration. So is Towne adequately integrated?

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes, I mean, there isn't a Towne anymore.

Tyler Brown -- Raymond James -- Analyst

No, I know, but does it feel like that got fully completed?

Michael J. Morris -- Chief Financial Officer and Treasurer

Sure.

Tyler Brown -- Raymond James -- Analyst

Okay.

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes, I mean, it's Forward Air. It's been Forward Air for a while.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

And I think example -- Tyler, the best example is actually final mile. Towne came with a few final mile locations, which are very much part of the -- our final mile business today. And no one would actually even -- I mean, historically, some people know, but no one would even think of these locations as Towne locations versus other final mile locations. It's one business.

Tyler Brown -- Raymond James -- Analyst

Okay. Okay, that's helpful. And then, I do want to talk about the cohabiting. I know you're doing an expansion in Columbus. You're adding facilities, but I am curious about the network from a door pressure perspective. I mean, particularly, as you trend back over 4 million shipments a year, do you feel that your door constrained? Maybe said another way, how much latent capacity do you think you have in the real estate? And then, does the co-locating -- if you're ringfencing, let's say, the end of the dock on a traditional airport-to-airport terminal, does that cause more door pressure in the existing expedited LTL or the existing airport-to-airport business?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Well, on the last one, the cohabitation is kind of done eyes wide open, where there is sufficient capacity between the two modes in a particular territory where they can make the conscious decision to join together.

If you think of the evolution, maybe we will use Savannah as an example. In Savannah, final mile is the POD point for LTL freight, selling into dozen or so zips around the terminal and able to pick up some business that really final mile is essentially an agent for LTL on even though it's -- we're all on the same umbrella. I mean, the goal there is actually to create some pressure for final mile, so they can kick us out and we go get our own terminal in Savannah, maybe a standard up as an agent till it gets to like $1 million a year type of revenue. And then if you're lucky, you take that agent over perhaps.

So the asset-light model offers an ability to kind of dial up and down your degree of intensity. Fontana in Southern California, that was no-brainer like we're going to go in with max intensity there and sign a lease and set up the terminal. But depending on the market, you can kind of go light, go medium, go heavy in terms of how much intensity around the cohabitation.

There is pressure in tight logistics areas, driven by e-commerce, and we tend to be in a lot of those office parks. So, Chicago and Atlanta, there are places some in the Northeast, where it's just in general, a real estate constrained situation, but we are operating, and we have room to grow. Sometimes it's not so much the terminal itself, it's like do you have enough parking for the drivers, sometimes it's the softer stuff.

One of the nice things that the CMH in Columbus -- sorry expansion will do for us, because that terminal is already at capacity. We're zone skipping and we're doing some things that we probably normally wouldn't do, if we had that capacity back. And so, as we make that investment -- and again, you've probably been there. You recall this terminal. It's the most significant in our network. We're going to grow its capacity 30% with this investment, expand the yard. That should bring a lot of freight flow efficiencies on linehaul because the more we're flowing through the central hub, we're getting lower linehaul costs, better load factor, better transit times, a better ability to blend the fleets. As we bring that back to its historic -- recent historic like 40% type number, that ought to ease pressure in some other terminals that might be receiving that inbound that built need to receive that inbound anymore.

So, there is ways to work within the network to adjust and modulate pressure. Fontana is a good example. Southern California congested lot of action. POD is growing. Staging POD on the dock can hit the operational efficiency. It's in the way. Fontana let's a stage POD and kind of bring the flow in in a more controlled way, while growing organically. So part of the revenue equation flows through to the ops equation that can get at pressure that might exist as your question suggests.

Tyler Brown -- Raymond James -- Analyst

Okay. I've got a couple of more just quickly. Obviously, in 2020, there are a lot of things out of your control. I am curious though, if you looked at it -- if you looked at the freight book pre-COVID, how much of the book was call it cruise lines, conferences, concerts? And in a holistic sense, does that extremely high service vertical carry an above-average margin profile?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

So the latter question Tyler first, the answer is yes. Imagine, I mean -- if you take an extreme example, setting up a Taylor Swift concert probably gets you better margins than delivering salt to a retailer, if you're doing your job halfway competently and we do. So, it does -- the answer to your mathematical question is in our numbers in an essence, 25% to 30%. And it was our most profitable business, LTL. That's to your point about margins went temporarily to sleep in May of last year.

Our Company because -- again, we have a Grow Forward program that the gentlemen who did a similar program together with me at my previous employer [Indecipherable] where you find, keep and expand other SIC codes are the verticals. So that's a program we had before COVID broke out. So, we couldn't foresee something called COVID. In fact you and I couldn't spell it, but we were prepared for accelerating and dialing up what's today called essential freight. I mentioned the example. Medical supplies makes up 20% of our closings in December.

So when you fast forward to a year or two from now, this Company, Forward Air, will be a better company because we will help those customers bring back over time what you just mentioned Tyler, those cruise lines, events, conferences, trade shows. And in some cases, by the way, the same customers that we also now are getting essential freight from, they just have a business unit that does types of events. So we keep the strong customer relationships. We bring that back.

You will have a much more stronger multi-leg Forward Air where we were a bit of at one-trick pony 15 years ago, and now we're getting premium freight in more spaces. And what COVID did was, it was -- and I'm not utilizing the human tragedies around it. It was a huge accelerator of a great program that we had in place anyway to find, keep and expand within Grow Forward additional legs.

So, I love where we are going to be heading. I wish it would have been a bit less painful in 2020 for all of us to kind of make that path even faster, but I love that multi-legged stool that we are creating as a company.

Tyler Brown -- Raymond James -- Analyst

Yeah. Okay, great. And then, my last one here. And Mike, we can maybe go kind of quickly here on this one, but on the earn-outs, so how much was the earn out was it in the other opex line? And do you think any additional accruals are over? Are we done there?

Michael J. Morris -- Chief Financial Officer and Treasurer

Are you talking about the final mile?

Tyler Brown -- Raymond James -- Analyst

Sorry, final mile. Correct. Yeah.

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes, that was inside of expedited freight. It was not below in other operations. The amount of the accrual in the current quarter was $2.6 million. It is the end of that, but one of the things I'll note is that in the prior period because of the kind of pre-COVID fluctuations of this business, we actually had an earn-out release relative to an accrual. So the period-over-period swing is actually like $3.5 million. But it is maxed out contractually. It can't go any higher. It settles in April and it's over.

Tyler Brown -- Raymond James -- Analyst

Okay. And then on the Pool earn-out. So what's the marker there? Do you -- what do you have to hit to get that earn-out? And is that a one-time earn-out, or is -- it's called like a multi-year earn-out?

Michael J. Morris -- Chief Financial Officer and Treasurer

It's a -- we will provide a lot more disclosure in the K about this transaction, which closed at 12:01 [Phonetic] in the morning. But it is a one-year earn-out. And that is when is Mark is determined. So one thing I'll mention is with that earn-out as long as it exists, would mean that we would continue way at the bottom of the P&L to keep a disc ops, even though the business is not ours anymore because the earn-out is still an open thing. Any of its fluctuations per the GAAP rules would have to go through disc ops. So hit the bottom or just going to have this little disc ops number, which is any change in the value of the earn-out. We also have a six-month TSA to help Ten Oaks gets stood up from a back office perspective.

Tyler Brown -- Raymond James -- Analyst

Okay. All right, guys. Very generous with your time. Thank you.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Hey, Tyler. I look forward to your conference in a couple of weeks.

Tyler Brown -- Raymond James -- Analyst

Sure. Thanks.

Operator

Thank you. And next, we go to the line of Todd Fowler with KeyBanc Capital Markets. Please go ahead.

Todd C. Fowler -- Keybanc Capital Markets -- Analyst

Hi. Great. Thanks and good morning. I think the Tyler and Scott were kind of on the right vein with some of the questions around the margin profile. And maybe just one last one from a history lesson standpoint. How much do you think the mix of business within the airport-to-airport business is impacting the margins? And I think historically that was a business that a lot of flat screen TVs pretty easy to handle. As you've shifted to more of e-commerce and some of that bulky size items are moving through the network, how much impact does that had on the margin profile in airport-to-airport?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yes. Good morning, Todd, and a great question. So as I said before like 10 minutes or so, one thing we cannot afford to do this -- we have to be good kind of thought partners and when drivers of a smart action plan. If you just took the almost like early e-commerce or to some extent in pre e-commerce airport-to-airport business and you like the margins, and they say, OK, multiply them by six times as much [Phonetic]. That's not going to work.

So because some of the e-commerce that you just mentioned obviously has dominated the airport-to-airport segment in some of the SIC codes. So, we have seen revenue per shipment challenges. We have seen weight challenges. And this is again where -- what we are doing and need to be doing is looking at all available premium LTL freight. Airport-to-airport is the core, always will be, and then there's the door-to-door stretches that fits those profiles that we love. The profiles that we all are referring to the profiles that we -- that actually generated those types of margins that Mike just talked about a few minutes ago that we're going to get back to beyond the 10% and 15%.

But yes, the weight going down, the e-commerce domination going up, certainly, has tremendously impact the margin profile of that airport-to-airport business. But that to us is a challenge, because again, there is a big sea of profitable LTL that's looking for the requirements that we are the best at providing. All we need to be doing is being extremely surgical in our precision execution to go after capture rate, and then again, get our fair slice of that value. But it is something that, like everything in business, has probably gotten harder. It's not easier and you just have to be at your best being extremely surgical, and again -- and do the work and that's what the team is doing.

Todd C. Fowler -- Keybanc Capital Markets -- Analyst

Yes. Got it. That makes a lot of sense. And that's helpful context there. And just a couple of quick follow-ups on a few things. First with the January tonnage. Is some of that some catch-up from December, or can you speak to maybe some of the strength that you're seeing within January? And then, how do you expect that to continue? Tom, you made the comments about not seeing a big wall around the Chinese New Year. So, can you talk a little bit about your expectations for tonnage in 1Q and the drivers behind that and how you strengthen the conviction that's going to persist?

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Yes, Todd, the January tonnage is January tonnage. I think our type of freight is, it doesn't have the luxury of a, if you don't move it on December 22, then you'll move it on January 4. So, it really is January tonnage.

And then the second point and perhaps equally a more important, we see that momentum continuing. I think somehow, Todd, it almost seems like between the slowing freight environment in 2019. If you remember, go back, 2018 was a boom year. 2019 slowed down. Second half of 2019 really slowed down. Then you go into COVID spring of 2020, somehow it almost feels like between the slowing down of the economy and freight economy in 2019 and COVID, you got a very contracted recession in a very short amount of time. We're out of that, a whole bunch of pent-up demand unleashed in the second half of 2020. And it seems like 2021 is boom time. It's more like 2018. And what we're seeing right now, January, February makes me believe that even more.

Todd C. Fowler -- Keybanc Capital Markets -- Analyst

Got it. Okay. And then maybe just my last one. Mike, with the additional cost for the additional IT around the cyber attack that you've got in your first quarter guidance, is your expectation that that's going to be something that continues through the year, or is that kind of an amount for 1Q and once you've incurred that expense, you're going to able to put that behind you and move forward?

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes. I know that it's the latter. We're just calling it out only because it relates to that event. Obviously, beneath that, we continue to make IT investments and those -- some of those are related to enhancing cyber, but this is more focused on closing out that -- closing out that event from an IT perspective. We're up and running and whatnot, but as IT wraps up the postmortem on that and feathers that into the roadmap going forward. Those are just related to that.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Forensics that have an endpoint, and that endpoint is clearly in Q1.

Todd C. Fowler -- Keybanc Capital Markets -- Analyst

Okay. It's not a higher run rate. It's just some additional costs that you incurred related to everything in December.

Michael J. Morris -- Chief Financial Officer and Treasurer

Yes.

Todd C. Fowler -- Keybanc Capital Markets -- Analyst

Okay, guys. Thanks so much for the time this morning.

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Thank you, Todd.

Operator

Thank you. I have no further questions in queue. [Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Thomas Schmitt -- Chairman, President and Chief Executive Officer

Michael J. Morris -- Chief Financial Officer and Treasurer

J. Bruce Chan -- Stifel -- Analyst

Wade Schaller -- Stephens -- Analyst

Scott H. Group -- Wolfe Research -- Analyst

Tyler Brown -- Raymond James -- Analyst

Todd C. Fowler -- Keybanc Capital Markets -- Analyst

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