ARCBEST CORP /DE/ - Annual Report: 2020 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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for the fiscal year December 31, 2020.

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for the transition period from to .

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Commission file number 0-19969

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ARCBEST CORPORATION

(Exact name of registrant as specified in its charter)

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Registrant’s telephone number, including area code 479-785-6000

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Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Act:

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None

(Title of Class)

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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The aggregate market value of the Common Stock held by nonaffiliates of the registrant, based on the closing price of the shares of Common Stock on the Nasdaq Global Select Market as of June 30, 2020, was $658,708,492.

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The number of shares of Common Stock, $0.01 par value, outstanding as of February 19, 2021, was 25,397,696.

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DOCUMENTS INCORPORATED BY REFERENCE

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Portions of the registrant’s Definitive Proxy Statement to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the registrant’s Annual Stockholders’ Meeting to be held April 29, 2021, are incorporated by reference in Part III of this Form 10-K.

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ARCBEST CORPORATION

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FORM 10-K

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PART I

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Forward-Looking Statements

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This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the federal securities laws. All statements, other than statements of historical fact, included or incorporated by reference in this Annual Report on Form 10-K, including, but not limited to, those in Item 1 (Business), Item 1A (Risk Factors), Item 3 (Legal Proceedings), and Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), are forward-looking statements. Terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “foresee,” “intend,” “may,” “plan,” “predict,” “project,” “scheduled,” “should,” “would,” and similar expressions and the negatives of such terms are intended to identify forward-looking statements. These statements are based on management’s beliefs, assumptions, and expectations based on currently available information, are not guarantees of future performance, and involve certain risks and uncertainties (some of which are beyond our control). Although we believe that the expectations reflected in these forward-looking statements are reasonable as and when made, we cannot provide assurance that our expectations will prove to be correct. Actual outcomes and results could materially differ from what is expressed, implied, or forecasted in these statements due to a number of factors, including, but not limited to:

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For additional information regarding known material factors that could cause our actual results to differ from those expressed in these forward-looking statements, please see Item 1A (Risk Factors). All forward-looking statements included or incorporated by reference in this Annual Report on Form 10-K and all subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements. The forward-looking statements speak only as of the date made and, other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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ITEM 1.BUSINESS

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ArcBest Corporation

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ArcBest Corporation^™ (together with its subsidiaries, the “Company,” “ArcBest^®,” “we,” “us,” and “our”) is a leading logistics company with creative problem solvers who deliver innovative solutions. Our mission is to connect and positively impact the world through solving logistics challenges.

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From its roots in less-than-truckload (“LTL”) delivery, ArcBest has transformed into a full-scale provider of end-to-end supply chain services with a focus on innovation. Under the ArcBest brand, we offer our full array of logistics solutions to optimize our customers’ supply chains, while we continue to offer asset-based LTL services through the ABF Freight^® network and ground expedite services under the Panther Premium Logistics^® brand. Our service offerings also include truckload, dedicated, managed transportation, intermodal, international air and ocean, time critical, warehousing and distribution, household goods moving services under the U-Pack^® brand, and commercial vehicle maintenance and repair through FleetNet America^®. With a comprehensive suite of freight transportation and logistics services and employees who have The Skill and The Will^® to get the job done, ArcBest has the unique ability to address even the most complex logistics and supply chain challenges that our customers face every day.

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Our operations are conducted through our three reportable operating segments, which are described in the Business Description section below:

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The ArcBest and FleetNet reportable segments, combined, represent our Asset-Light operations.

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Vision and Values

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“We’ll Find a Way” is the vision of ArcBest. It is a testament of what our customers say about us – that we’re the kind of company who partners with them to solve problems and make things happen. It speaks to the can-do attitude and will of our people to do the hard things well.

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We carry out our vision by exemplifying our corporate values:

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Strategy

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Our strategy is to produce long-term value with our creative problem solvers by growing informed, trusted, and innovative relationships with shippers and capacity providers and delivering a best-in-class experience efficiently through their desired channels.

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We work to build long-term value for our customers, employees and shareholders by:

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Business Description

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We deliver innovative solutions for a variety of supply chain challenges. Our offerings include LTL freight transportation through the ABF Freight network; specialized transportation, logistics, and supply chain management services through our ArcBest segment, including ground expedite solutions through the Panther Premium Logistics brand and household goods moving services under the U-Pack brand; and commercial vehicle maintenance and repair from FleetNet. From Fortune 100 companies to small businesses, our customers trust ArcBest for their transportation and logistics needs.

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With a relentless focus on customer needs and unique access to assured transportation capacity, we create solutions for even the most complex and demanding supply chains. We strive to help customers solve their logistics challenges by efficiently providing a best-in-class experience with easy access to our broad suite of capabilities.  

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For the year ended December 31, 2020, no single customer accounted for more than 3% of our consolidated revenues, and the 10 largest customers, on a combined basis, accounted for approximately 12% of our consolidated revenues. The Company was incorporated in Delaware in 1966 and is headquartered in Fort Smith, Arkansas.

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Asset-Based Segment

Our Asset-Based segment provides LTL services through ABF Freight’s motor carrier operations. Asset-Based revenues accounted for approximately 68% of our total revenues before other revenues and intercompany eliminations in 2020. For the year ended December 31, 2020, no single customer accounted for more than 4% of revenues in the Asset-Based segment, and the segment’s 10 largest customers, on a combined basis, accounted for approximately 11% of its revenues. Note M to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K contains additional segment financial information, including revenues and operating income for the years ended December 31, 2020, 2019, and 2018.

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Our Asset-Based carrier, ABF Freight, has been in continuous service since 1923. ABF Freight System, Inc. is the successor to Arkansas Motor Freight, a business originally organized in 1935 which was the successor to a local transfer and storage carrier that was originally organized in 1923. ABF Freight expanded operations through several strategic acquisitions and organic growth and is now one of the largest LTL motor carriers in North America, providing direct service to more than 98% of U.S. cities having a population of 30,000 or more. ABF Freight offers interstate and intrastate service to approximately 52,000 communities through 239 service centers in all 50 states, Canada, and Puerto Rico. ABF Freight also provides motor carrier freight transportation services to customers in Mexico through arrangements with trucking companies in that country.

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Our Asset-Based operations offer transportation of general commodities through standard, time-critical, and guaranteed LTL services. General commodities include all freight except hazardous waste, dangerous explosives, commodities of exceptionally high value, commodities in bulk, and those requiring special equipment. Shipments of general commodities differ from shipments of bulk raw materials, which are commonly transported by railroad, truckload tank car, pipeline, and water carrier. General commodities transported by our Asset-Based operations include, among other things, food, textiles, apparel, furniture, appliances, chemicals, nonbulk petroleum products, rubber, plastics, metal and metal products, wood, glass, automotive parts, machinery, and miscellaneous manufactured products.

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The LTL transportation industry, which requires networks of local pickup and delivery service centers combined with larger distribution facilities, is significantly more infrastructure-intensive than truckload operations and, as such, has higher

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barriers to entry. Costs associated with an expansive LTL network, including investments in or costs associated with real estate and labor costs related to local pickup, delivery, and cross-docking of shipments, are to a large extent fixed in nature unless service levels are significantly changed.

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ArcBest Technologies, Inc., our wholly-owned subsidiary which is focused on the advancement of supply chain execution technologies, began a pilot test program (the “pilot”) in early 2019 to improve freight handling at ABF Freight. The pilot utilizes patented handling equipment, software, and a patented process to load and unload trailers more rapidly and safely, with full freight loads pulled out of the trailer onto the facility floor and accessible from multiple points. The pilot is in operation in a limited number of locations. ABF Freight has leased new facilities in the test pilot regions in Indiana and a new distribution center in Kansas City where operations commenced in late-third quarter 2020. The pilot provides ABF Freight an opportunity to evaluate the potential for improving safety and working conditions for employees and for providing a better experience for customers. Potential benefits include improved transit performance, reduced cargo claims, reduced injuries and workers’ compensation claims, and faster employee training. While we believe the pilot has potential to provide safer and improved freight-handling, a number of factors will be involved in determining proof of concept and there can be no assurances that pilot testing will be successful or expand beyond current testing locations.

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Labor costs, which amounted to 52.4% of Asset-Based revenues for 2020, are the largest component of the segment’s operating expenses. As of December 2020, approximately 82% of the Asset-Based segment’s employees were covered under a collective bargaining agreement, the ABF National Master Freight Agreement (the “2018 ABF NMFA”), with the International Brotherhood of Teamsters (the “IBT”), which was ratified on May 10, 2018 by a majority of ABF Freight’s IBT member employees who voted. Following ratification of the supplements to the collective bargaining agreement, the 2018 ABF NMFA was implemented on July 29, 2018, effective retroactive to April 1, 2018, and will remain in effect through June 30, 2023. The major economic provisions of the 2018 ABF NMFA include restoration of one week of vacation that was previously reduced in the prior collective bargaining agreement, which began accruing on anniversary dates on or after April 1, 2018, with the new vacation eligibility schedule being the same as the applicable 2008 to 2013 supplemental agreements; wage rate increases in each year of the contract, beginning July 1, 2018; ratification bonuses for qualifying employees; profit-sharing bonuses upon the Asset-Based segment’s achievement of certain annual operating ratios calculated in accordance with U.S. generally accepted accounting principles (“GAAP”) for any full calendar year under the contract; and changes to purchased transportation provisions with certain protections for road drivers as specified in the contract. The 2018 ABF NMFA and the related supplemental agreements provide for contributions to multiemployer pension plans frozen at the current rates for each fund, continuation of existing health coverage, and annual contribution rate increases to multiemployer health and welfare plans maintained for the benefit of ABF Freight’s employees who are members of the IBT. Under the 2018 ABF NMFA, the contractual wage and benefits costs, including the ratification bonuses and vacation restoration, are estimated to increase approximately 2.0% on a compounded annual basis through the end of the agreement. Profit-sharing bonuses based on the Asset-Based segment’s annual operating ratios for any full calendar year under the contract represent an additional increase in costs under the 2018 ABF NMFA. The profit-sharing bonus under the 2018 ABF NMFA was earned for the years ended December 31, 2020 and 2019 upon the Asset-Based segment achieving an annual GAAP operating ratio of 95.3% for 2020 and 95.2% for 2019.

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ABF Freight contributes to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. Amendments to the Employee Retirement Income Security Act of 1974 (“ERISA”), pursuant to the Multiemployer Pension Plan Amendments Act of 1980 (the “MPPA Act”), substantially expanded the potential liabilities of employers who participate in multiemployer pension plans. Under ERISA, as amended by the MPPA Act, an employer who contributes to a multiemployer pension plan and the members of such employer’s controlled group are jointly and severally liable for their share of the plan’s unfunded vested benefits in the event the employer ceases to have an obligation to contribute to the plan or substantially reduces its contributions to the plan (i.e., in the event of a complete or partial withdrawal from the multiemployer plans). ABF Freight’s funding obligations to the multiemployer pension plans to which it contributes are intended to satisfy the requirements imposed by the Pension Protection Act of 2006 (the “PPA”), which was permanently extended by the Multiemployer Pension Reform Act of 2014 (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Through the term of its current collective bargaining agreement, ABF Freight’s multiemployer pension plan contribution obligations generally will be satisfied by making the specified contributions when due. However, we cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. See Note I to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for more specific disclosures regarding the multiemployer pension plans to which ABF Freight contributes.

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ABF Freight operates in a highly competitive industry which consists predominantly of nonunion motor carriers. Nonunion competitors have a lower fringe benefit cost structure and less stringent labor work rules, and certain carriers also have lower wage rates for their freight-handling and driving personnel. Wage and benefit concessions granted to certain union competitors also allow for a lower cost structure. ABF Freight has continued to address with the IBT the effect of the wage and benefit cost structure on its operating results. The combined effect under the contractual labor agreement in place prior to the 2018 ABF NMFA of cost reductions, lowered cost increases throughout the contract period, and increased flexibility in labor work rules were important factors in bringing ABF Freight’s labor cost structure closer in line with that of its competitors; however, ABF Freight continues to pay some of the highest benefit contribution rates in the industry. These rates include contributions to multiemployer plans, a portion of which are used to fund benefits for individuals who were never employed by ABF Freight. Information provided by a large multiemployer pension plan to which ABF Freight contributes indicates that approximately 50% of the plan’s benefit payments are made to retirees of companies that are no longer contributing employers to that plan.

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Asset-Light Operations

The ArcBest and FleetNet reportable segments, combined, represent our Asset-Light operations. Our Asset-Light operations are a key component of our strategy to offer customers end-to-end logistics solutions, designed to satisfy the complex supply chain and unique shipping requirements they encounter. Through unique methods and processes, including technology solutions and the use of third-party service providers, our Asset-Light operations provide various logistics and maintenance services without significant investment in revenue equipment or real estate.

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For the year ended December 31, 2020, the combined revenues of our Asset-Light operations accounted for approximately 32% of our total revenues before other revenues and intercompany eliminations. For the year ended December 31, 2020, no single customer accounted for more than 5% of the ArcBest segment’s revenues, and the segment’s 10 largest customers, on a combined basis, accounted for approximately 25% of its revenues. Note M to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K contains additional segment financial information, including revenues and operating income for the years ended December 31, 2020, 2019, and 2018.

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ArcBest Segment

Our ArcBest segment originated with the formation of ABF Logistics in July 2013, when we aligned the sales and operations functions of our organically developed logistics businesses. We have continued to strategically invest in our Asset-Light operations to help ensure we are positioned to serve the changing marketplace and meet our customers’ expanding needs by providing a comprehensive suite of transportation and logistics services. The ArcBest segment includes the acquired ground expedite services of the Panther Premium Logistics brand; our acquired truckload and dedicated operations; and household goods moving services under the U-Pack brand, for which the majority of the moves are provided with our Asset-Based operations. Under our enhanced market approach to offer customers a single source of end-to-end logistics, the service offerings of the ArcBest segment have become more integrated. Management’s operating decisions are increasingly focused on the ArcBest segment’s combined operations, rather than individual service offerings within the segment’s operations. The ArcBest segment offers the following solutions:

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Expedite

Through the Panther Premium Logistics brand, we offer expedite freight transportation services to commercial and government customers and premium logistics services that involve the rapid deployment of highly specialized equipment to meet extremely specific linehaul requirements, such as temperature control, hazardous materials, geofencing (routing a shipment across a mandatory, defined route with satellite monitoring and automated alerts concerning any deviation from the route), specialized government cargo, security services, and life sciences. Through these services, ArcBest solves the toughest shipping and logistics challenges that customers face through a global network of owner operators and contract carriers.

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Substantially all of the network capacity for our expedite operations is provided by third-party carriers, including owner operators, ground linehaul providers, cartage agents, and other transportation asset providers, which are selected based on their ability to serve our customers effectively with respect to price, technology capabilities, geographic coverage, and quality of service. Third-party owned vehicles are driven by independent contract drivers and by drivers engaged directly by independent owners of multiple pieces of equipment, commonly referred to as fleet owners. Our expedite operations own a fleet of trailers, the communication devices used by its owner operators, and certain highly specialized equipment, primarily temperature-controlled and temperature-validated trailers, to meet the service requirements of certain customers.

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Truckload and Dedicated

Our truckload and dedicated services provide third-party transportation brokerage by sourcing a variety of capacity solutions, including dry van over the road, temperature-controlled and refrigerated, flatbed, intermodal or container shipping, and specialized equipment, coupled with strong technology and carrier- and customer-based Web tools. We offer a growing network of more than 40,000 qualified service providers, with services to 50 states, Canada, and Mexico. Additional value is created for customers through seamless access to the ABF Freight network.

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International

Our International shipping and logistics services provide international ocean and air shipping solutions by partnering with ocean shipping lines and air freight carriers worldwide, as well as cross-border shipping and ground transportation to and from ports. As a non-vessel operating common carrier, we provide less-than-container load and full-container load service, offering ocean transport to approximately 90% of the total ocean international market to and from the United States. We also offer warehousing and distribution services to and from major ports across the globe to streamline our customers’ ocean shipping processes.

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Managed Transportation

Through our managed transportation solutions, we provide complete freight transportation management services which enable customers to continually optimize their supply chains. ArcBest seeks to offer value through identifying specific challenges relating to customers’ supply chain needs and providing customized solutions utilizing technology, both internally to manage its business processes and externally to provide shipment and inventory visibility to its customers. Additional value is created for customers through seamless access to the ABF Freight network, the Panther fleet, and other ArcBest capacity sources, offering strategic supply chain solutions with unique access to assured capacity.

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Moving

Our moving services offer flexibility and convenience in the way people move through targeted service offerings for the “do-it-yourself” consumer. We offer these targeted services at competitive prices that reflect the additional value customers find in our convenient, reliable moving service offerings. Industry-leading technology, customer-friendly interfaces, and supply chain solutions are combined to provide a wide range of options customized to meet unique customer needs.

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Other Logistics Services

We also provide other services to meet our customers’ logistics needs, such as final mile, time critical, product launch, warehousing and distribution, retail logistics, supply chain optimization, and trade show shipping services. In 2019, we launched our Retail+ compliance solution which helps vendors better meet large retailers’ stringent shipping and delivery requirements by combining innovative software solutions with enhanced operations processes.

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FleetNet Segment

The FleetNet segment includes the results of operations of FleetNet America, Inc. (“FleetNet”), our subsidiary that provides roadside repair solutions and vehicle maintenance management services for commercial and private fleets through a network of third-party service providers in the United States, Canada, and Puerto Rico. FleetNet began in 1953 as the internal breakdown department for Carolina Freight Carriers Corp. and was incorporated in 1993 as Carolina Breakdown Service, Inc. In 1995, we purchased WorldWay Corporation, which operated various subsidiaries including Carolina Freight Carriers Corp. and Carolina Breakdown Service, Inc. The name of Carolina Breakdown Service, Inc. was changed to FleetNet America, Inc. in 1997.

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Competition, Pricing, and Industry Factors

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Competition

Our Asset-Based segment actively competes for freight business with other national, regional, and local motor carriers and, to a lesser extent, with private carriage, domestic and international freight forwarders, railroads, and airlines. The segment competes most directly with nonunion and union LTL carriers, including Yellow Corporation, FedEx Freight Corporation (included in the FedEx Freight reporting segment of FedEx Corporation), UPS Freight (included in the Supply Chain & Freight reporting segment of United Parcel Service, Inc.), Old Dominion Freight Line, Inc., Saia, Inc., the LTL reporting segment of Roadrunner Transportation Systems, Inc., and the North American LTL operations of XPO Logistics, Inc. Competition is based primarily on price, service, and availability of flexible shipping options to customers. The Asset-Based segment’s careful cargo handling, access to other ArcBest logistics solutions, and use of technology, both internally to manage its business processes and externally to provide shipment visibility to its customers, are examples of how we add value to our services.

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Our ArcBest segment operates in a very competitive asset-light logistics market that includes approximately 17,000 active brokerage authorities, as well as asset-based truckload carriers, logistics companies including large expedite carriers, smaller expedite carriers, foreign and U.S.-based non-vessel-operating common carriers, freight forwarders, internal shipping departments at companies that have substantial transportation requirements, smaller niche service providers, and a wide variety of solution providers, including large integrated transportation companies as well as regional warehouse and transportation management firms. The segment competes most directly with logistics companies including Landstar System, Inc., Echo Global Logistics, Inc., Hub Group, Inc., the North American Surface Transportation segment of C.H. Robinson Worldwide, Inc., the Integrated Capacity Solutions segment of J.B. Hunt Transport Services, Inc., and the Logistics segment of Knight-Swift Transportation Holdings Inc. ArcBest’s moving services compete with truck rental, self-move, and van line service providers, and a number of emerging self-move competitors who offer moving and storage container service. Quality of service, technological capabilities, and industry expertise are critical differentiators among the competition. In particular, companies with advanced systems that offer optimized shipping solutions, real-time visibility of shipments, verification of chain of custody procedures, and advanced security have significant operational advantages and create enhanced customer value.

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FleetNet competes in the commercial vehicle maintenance and repair industry in two major sectors: emergency roadside and preventive maintenance. FleetNet competes directly against other third-party service providers, automotive fleet managers, leasing companies, and companies handling repairs in-house via individual service providers. Market competition for FleetNet is based primarily on maintenance solutions service offerings. In partnership with best-in-class third-party vendors, FleetNet offers flexible, customized solutions and utilizes technology to provide valuable information and data to minimize fleet downtime, reduce maintenance events, and lower total maintenance costs for its customers.

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Pricing

Approximately one fourth of our Asset-Based business is subject to base LTL tariffs, which are affected by general rate increases, combined with individually negotiated discounts. Rates on the other three fourths of our Asset-Based business, including business priced in the spot market, are subject to individual pricing arrangements that are negotiated at various times throughout the year. The majority of the business that is subject to negotiated pricing arrangements is associated with larger customer accounts with annually negotiated pricing arrangements, and the remaining business is priced on an individual shipment basis considering each shipment’s unique profile, the value we provide to the customer, and current market conditions.

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In December 2019, we began allowing shippers without negotiated published rates to obtain competitive LTL rates for their shipping needs with ABF Freight’s reliable service and capacity options. This innovative pricing mechanism allows customers to instantly access LTL rates online, by phone, or through application programming interface (“API”) technology for shipments within the United States, Canadian cross-border, Mexico, and Puerto Rico. We are able to offer customers the best price on each shipment by leveraging available capacity within the ABF Freight network at the time of the shipment. The market has been receptive to this pricing option for transactional LTL shipments and the program has been beneficial in optimizing our business levels during 2020.

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In August 2017, we began applying space-based pricing on shipments subject to LTL tariffs to better reflect freight shipping trends that have evolved over the last several years. These trends include the overall growth and ongoing profile shift of bulkier shipments across the entire supply chain, the acceleration in e-commerce, and the unique requirements of many shipping and logistics solutions. An increasing percentage of freight is taking up more space in trailers without a corresponding increase in weight. Space-based pricing involves the use of freight dimensions (length, width, and height) to determine applicable cubic minimum charges (“CMC”) that supplement weight-based metrics when appropriate. Traditional LTL pricing is generally weight-based, while our linehaul costs are generally space-based (i.e., costs are impacted by the volume of space required for each shipment). We believe space-based pricing better aligns our pricing mechanisms with the metrics which affect our resources and, therefore, our costs to provide logistics services. We seek to provide logistics solutions to our customers’ businesses and the unique shipment characteristics of their various products and commodities, and we believe that we are particularly experienced in handling complicated freight. The CMC is an additional pricing mechanism to better capture the value we provide in transporting these shipments.

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Our Asset-Based and certain operations within our ArcBest segment assess a fuel surcharge based on the index of national on-highway average diesel fuel prices published weekly by the U.S. Department of Energy. While the fuel surcharge is one of several components in our overall rate structure, the actual rate paid by customers is governed by market forces and the overall value of services provided to the customer.

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Industry Factors

According to management’s estimates and market studies by Armstrong & Associates, Inc. and the U.S. Department of Commerce, the total market potential in the industry segments we serve is approximately $330 billion, with $43 billion of potential revenue in the LTL market segment, $244 billion potential in the markets served by our ArcBest segment, and $43 billion in the maintenance and repair market served by our FleetNet segment. The LTL industry has significant barriers to entry and is highly competitive, as previously discussed in “Asset-Based Segment” within this Business section. Our Asset-Light operations represent a minor portion of the total market, which evidences the significant growth opportunity for us in the outsourced logistics market. More sophisticated supply chain practices are required as supply chains expand and become more complex, product and service needs continue to evolve, and companies look for solutions to their logistics challenges as well as for lower cost supply chain alternatives.

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The transportation industry is subject to numerous laws, rules, and regulations, as further discussed below within “Environmental and Other Government Regulations,” and carriers are required to obtain and maintain various licenses and permits, some of which are difficult to obtain. The trucking industry faces rising costs of compliance with government regulations on safety, equipment design and maintenance, driver utilization, and fuel economy, as well as increasing costs in certain non-industry specific areas, including health care and retirement benefits. Higher compliance costs will continue to impair the competitiveness of smaller carriers in the logistics market, which may lead to tighter capacity or consolidation within certain sectors. In addition, disruptions from unexpected events such as natural disasters and the COVID-19 pandemic have resulted in further utilization of expedited shipping and premium logistics services and have caused companies to focus on risk management within their supply chains.

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Seasonality

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Our operations are impacted by seasonal fluctuations that affect tonnage, shipment or service event levels, and demand for our services, which in turn may impact our revenues and operating results. The COVID-19 pandemic had a significant negative impact on demand for our services during the second quarter of 2020, resulting in lower tonnage, shipment, and service event levels and, consequently, a decline in revenues. Although business levels improved in the third quarter of 2020, our results for 2020 do not reflect typical seasonal trends in business levels as described below for our reportable operating segments as a result of the impact of the COVID-19 pandemic on second quarter business levels.

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Freight shipments and operating costs of our Asset-Based and ArcBest segments can be adversely affected by inclement weather conditions. The second and third calendar quarters of each year usually have the highest tonnage levels, while, historically, the first quarter generally has the lowest, although other factors, including the state of the U.S. and global economies, available capacity in the market, and the impact of other adverse external events or conditions, including the COVID-19 pandemic as previously described, may influence quarterly business levels.

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ArcBest segment operations are influenced by seasonal fluctuations that impact customers’ supply chains. Shipments of the ArcBest segment may decline during winter months because of post-holiday slowdowns, but expedite shipments can be subject to short-term increases depending on the impact of weather disruptions to customers’ supply chains. Plant shutdowns during summer months may affect shipments for automotive and manufacturing customers of the ArcBest segment, but severe weather events can result in higher demand for expedite services. Moving services of the ArcBest segment are impacted by seasonal fluctuations, generally resulting in higher business levels in the second and third quarters as the demand for moving services is typically stronger in the summer months.

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Emergency roadside service events of the FleetNet segment are favorably impacted by extreme weather conditions that affect commercial vehicle operations, and the segment’s results of operations will be influenced by seasonal variations in service event volume and the impact of other external events or conditions, including the COVID-19 pandemic as previously described.

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Technology

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Our advancements in technology are important to customer experience, efficiency, and scalability, and provide a competitive advantage. We continue to make investments in technology and innovations to advance in these areas. The majority of the information technology applications we use have been developed internally and tailored specifically for customer, capacity supplier, or internal business processing needs by our ArcBest Technologies subsidiary.

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As previously disclosed in “Asset-Based Segment” within this Business section,  ArcBest Technologies began a pilot in early 2019 to improve freight handling at ABF Freight, which utilizes patented handling equipment, software, and a patented process to load and unload trailers more rapidly and safely. We have made other technology investments in a variety of areas to improve customer experience and optimize costs in our operating segments. In the Asset-Based segment, we are using enhanced tools to improve city pickup and delivery productivity, including advanced hardware and software enabled by proprietary analytics and algorithms. We use certain cognitive technologies to improve customer service and optimize our operations. In the ArcBest segment, we have developed machine-learning cognitive technologies using algorithms embedded in the applications our employees use to simplify and drive better decision making. We have launched a capacity sourcing tool to optimize the utilization of internal equipment capacity while reducing the time it takes to secure external equipment capacity in meeting customer requirements. We also use common quoting systems and predictive analytics tools which are undergoing continuous development and require ongoing investment.

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Freight transportation customers communicate their freight needs, typically on a shipment-by-shipment basis, by means of telephone, email, web, mobile applications, or electronic data interchange (“EDI”)  and, more recently, by API. In the ArcBest segment, the information about each shipment is entered into a proprietary operating system which facilitates selection of a contracted carrier or carriers based on the carrier’s service capability, equipment availability, freight rates, and other relevant factors. Once the carrier is selected, the cost for the transportation has been agreed upon, and the carrier has committed to provide the transportation, we are in contact with the carrier through numerous means of communication (i.e., mobile apps, satellite tracking, electronic logging device (“ELD”), and other communication units on the vehicles) to continually update the position of equipment, to better meet customers’ requirements to track the status of the shipment from origin to delivery. The various tracking methods automatically update our fully integrated internal software and provide customers with real-time electronic updates.

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We make information readily accessible to our customers through various electronic pricing, billing, and tracking services, including mobile-responsive websites which allow customers to access information about their shipments, request shipment pickup, and utilize a variety of other digital tools. Online functions tailored to the services requested by customers include bill of lading generation, pickup planning, customer-specific price quotations, proactive tracking, customized e-mail notification, logistics reporting, dynamic rerouting, and Extensible Markup Language (XML) connectivity. This technology allows customers to incorporate data from our systems directly into their own website or backend information systems using EDI standards as well as secure API. As a result, our customers can provide shipping information and support directly to their own customers.

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ArcBest launched an innovation accelerator to encourage new, transformative ideas. This accelerator represents a team of employees from across the organization who work closely with executive leadership to identify opportunities for disruptive innovation within our company, as well as evaluate potential external innovation partners. In 2020, ArcBest was a member of the Blockchain in Transport Alliance, which is a consortium of more than 250 freight transportation companies working to develop and set standards for the use of blockchain technology within the logistics and transportation industry.

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Insurance

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Generally, claims exposure in the freight transportation and logistics industry consists of workers’ compensation, third-party casualty liability, and cargo loss and damage. We are effectively self-insured for $1.0 million of each workers’ compensation loss.  For each third-party casualty loss, we are generally self-insured for $1.0 million. We are also self-insured for each cargo loss, up to a $0.3 million deductible for our Asset-Based segment and a $0.1 million deductible for our ArcBest segment. We maintain insurance that we believe is adequate to cover losses in excess of such self-insured amounts or deductibles. However, we cannot provide assurance that our insurance coverage will provide adequate protection under all circumstances or against all potential losses. We have experienced situations where excess insurance carriers have become insolvent. We pay assessments and fees to state guaranty funds in states where we have workers’ compensation self-insurance authority. In some of these states, depending on the specific state’s rules, the guaranty funds may pay excess claims if the insurer cannot pay due to insolvency. However, there can be no certainty of the solvency of individual state guaranty funds.

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We have been able to obtain what we believe to be adequate insurance coverage for 2021 and are not aware of any matters which would significantly impair our ability to obtain adequate insurance coverage at market rates for our operations in the foreseeable future. A material increase in the frequency or severity of accidents, cargo claims, or workers’

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compensation claims or the material unfavorable development of existing claims could have a material adverse effect on our cost of insurance and results of operations.

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Environmental and Other Government Regulations

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Various international, federal, state and local agencies exercise broad regulatory powers over the transportation industry, generally governing such activities as operations of and authorization to engage in motor carrier freight transportation, operations of non-vessel-operating common carriers, operations of ocean freight forwarders and ocean transportation intermediaries, indirect air carriage, safety, contract compliance, insurance and bonding requirements, tariff and trade policies, customs, import and export, food safety, employment practices, licensing and registration, taxation, environmental matters, data privacy and security, and financial reporting. Compliance with future modifications to the regulations impacting the transportation industry may impact our operating practices and costs, which could have a material adverse impact on our financial condition, results of operations, and cash flows. Other carriers would be similarly affected by changes in industry regulations; therefore, the impact of such changes on our competitive position cannot be determined.

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Environmental Regulations

We are subject to federal, state, and local environmental laws and regulations relating to, among other things: emissions control, transportation or handling of hazardous materials, underground and aboveground storage tanks, stormwater pollution prevention, contingency planning for spills of petroleum products, and disposal of waste oil.

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In August 2016, the U.S. Environmental Protection Agency (the “EPA”) and the National Highway Traffic Safety Administration (the “NHTSA”) jointly finalized a national program establishing a second phase of greenhouse gas emissions (“EPA/NHTSA Phase 2”), imposing new fuel efficiency standards for medium- and heavy-duty vehicles, such as those operated by our Asset-Based segment, for model years 2021-2027 and also instituting fuel efficiency improvement technology requirements for trailer model years 2018-2027. In September 2020, the U.S. Court of Appeals for the District of Columbia stayed the portion of the EPA/NHTSA Phase 2 Final Rule regarding the trailer regulations, and the review of the Final Rule has an indefinite date of final ruling.

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In September 2019, the state of California signed legislation which directs the California Air Resources Board (the “CARB”) and other state agencies to develop and implement a comprehensive inspection and maintenance program for heavy-duty vehicles. A number of states have individually enacted, and California and certain other states may continue to enact, legislation relating to engine emissions, trailer regulations, fuel economy, and/or fuel formulation, such as regulations enacted by the CARB. In December 2019, the CARB announced it will be suspending, until at least January 2022, its previously approved plans to enforce certain provisions of the EPA/NHTSA Phase 2 Final Rule that would regulate glider kits and trailers. In the event the EPA does not enforce the trailer regulations of EPA/NHTSA Phase 2, certain other states may also individually enact legislation to enforce the regulations. At the present time, management believes that these regulations may not result in significant net additional overall costs should the technologies developed for tractors, as required in the EPA/NHTSA Phase 2 rulemaking, prove to be as cost-effective as forecasted by the EPA and the NHTSA.

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In November 2018, the EPA launched the “Cleaner Trucks Initiative” (the “CTI”) which includes plans for future rulemaking to reduce nitrogen oxide emissions. In January 2020, the EPA published an Advanced Notice of Proposed Rulemaking to solicit pre-proposal comments on the CTI. One planned feature of the initiative is to coordinate emissions standards nationwide in an effort to make compliance easier for the industry by preventing a further patchwork of state and local emissions regulations. The EPA intends to issue a proposed rulemaking in 2021 and is considering implementation of new standards beginning for 2027 model year engines.

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While fuel consumption and emissions may be reduced under the new standards, emission-related regulatory actions have historically resulted in increased costs of revenue equipment, diesel fuel, and equipment maintenance, and future legislation, if enacted, could result in increases in these and other costs. We are unable to determine with any certainty the effects of any future climate change legislation beyond the currently enacted regulations, and there can be no assurance that more restrictive regulations than those previously described will not be enacted either federally or locally.

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At certain facilities of our Asset-Based operations, we store fuel and oil in underground and aboveground tanks for use in tractors and trucks. Maintenance of our 56 underground fuel storage tanks, which are located in 16 states, is regulated by the EPA and, in most cases, by state agencies. Management believes we are in substantial compliance with all such

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regulations. The underground storage tanks are required to have leak detection systems, and we are not aware of any leaks from such tanks that could reasonably be expected to have a material adverse effect on our operating results.

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Certain of our Asset-Based service center facilities operate with no exposure certifications or stormwater permits under the federal Clean Water Act (“CWA”). The no exposure certification and stormwater permits may require periodic facility inspections and monitoring and reporting of stormwater sampling results. We are currently negotiating a settlement with the EPA regarding certain non-compliance issues with the CWA, the amount of which is not expected to have a material adverse effect on our financial condition, results of operations, or cash flows.

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We have received notices from the EPA and others that we have been identified as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, or other federal or state environmental statutes, at several hazardous waste sites. After investigating our subsidiaries’ involvement in waste disposal or waste generation at such sites, we have either agreed to de minimis settlements or determined that our obligations, other than those specifically accrued with respect to such sites, would involve immaterial monetary liability, although there can be no assurance in this regard. It is anticipated that the resolution of our environmental matters could take place over several years. Our reserves for environmental compliance matters and cleanup costs are estimated based on management’s experience with similar environmental matters and on testing performed at certain sites.

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Other Government Regulations

We operate in the United States, and from the United States for international transportation, pursuant to federal operating authority granted by the U.S. Department of Transportation (the “DOT”) and the U.S. Federal Maritime Commission. Our operations are subject to cargo security and transportation regulations issued by the Transportation Security Administration and regulations issued by the U.S. Department of Homeland Security.

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Our Asset-Based operations and our ArcBest segment’s network of third-party contract carriers must comply with industry regulations, including the ELD mandate of the Federal Motor Carrier Safety Administration (the “FMCSA”) for interstate commercial trucks and hours-of-service, safety and fitness, and other regulations of the DOT, including requirements related to drug and alcohol testing. We are subject to the hazardous materials regulations of the FMCSA for our transportation and arrangement for transportation of hazardous materials and explosives, as well as our disposal of hazardous waste.

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We provide transportation and logistics services to and from a number of international locations and are, therefore, subject to a wide variety of domestic and international laws and regulations, including export and import laws. We are also subject to compliance with the Foreign Corrupt Practices Act and hold Customs-Trade Partnership Against Terrorism status for businesses within our Asset-Based and ArcBest segments.

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If we were to violate the government regulations under which we operate, we may be subject to substantial fines or penalties or our business operations could be restricted, which could have a material adverse impact on our financial condition, results of operations, and cash flows.

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Human Capital Resources

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As of December 2020, we had approximately 13,000 employees, of which approximately 59% were members of labor unions. As previously described in “Asset-Based Segment” within this Business section, as of December 2020, approximately 82% of our Asset-Based segment’s employees were covered under the 2018 ABF NMFA, the collective bargaining agreement with the IBT, which will remain in effect through June 30, 2023.

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Employee Attraction, Development, and Retention

Our business results and future growth opportunities depend on our ability to successfully manage our human capital resources, including attracting, developing, and retaining our personnel. Our data enriched, real-time linkage between forecasted demand and diverse talent pools, along with hiring for character, enable our unified recruiting team to attract and onboard the right candidates for the right roles faster than ever before. It all starts with hiring the right, values-aligned people. We then have intentional training and development plans throughout each stage of career progression that accelerate job mastery and development for future roles. We strive to recruit the right individual for each position and maintain a culture of continuous growth and development for our employees.  Through our comprehensive

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learning program, we offer classroom, virtual, and web-based training options. We also offer a tuition reimbursement program, and we partner with a private university to offer onsite and virtual classes for employees to further their education.

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We utilize a customized performance management system that incorporates goals and development planning to better position employees in their career paths. We also have a succession planning program to ensure continuity in critical roles within our organization. We evaluate compensation to ensure it remains competitive, including the insurance and retirement benefits we provide to support the four pillars of wellness for our employees – physical, financial, emotional, and social. An annual survey is conducted to request feedback from employees to help us assess and improve engagement and implement changes to enhance our work environment.

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Attracting and retaining qualified truck drivers is crucial to our business. To address the driver shortage that continues to impact the freight transportation industry, we have a partnership with the IBT that allows us to hire potential drivers and train them in-house through our Driver Development Program.

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Diversity, Equity, and Inclusion

We embrace and encourage diverse experience and perspectives which, in turn, help us create an environment in which our employees want to belong, and such diversity helps us better serve our customers around the globe. We recently partnered with a consulting firm who specializes in the areas of diversity, equity, and inclusion as we work to assess, develop, and measure these areas of human capital management in our organization. Our corporate Code of Conduct sets forth our general principles of business conduct and ethics. Our nonunion employees are required to participate in annual Code of Conduct training, which includes our anti-discrimination and anti-harassment policies to further educate to our employees about the importance of diversity.

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Health, Safety, and Security

We are focused on the health and wellbeing of our employees and we have numerous programs to support our people in embracing total health. In addition to health benefits and voluntary insurance options, we also offer a wellness program in which employees may receive reduced premiums, deductibles, and out-of-pocket expenses for their insurance by completing certain preventative health requirements. We offer a digital health platform and weight loss program, and we encourage healthy behaviors throughout the year through regular communications, educational sessions, wellness challenges, and other incentives.

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As a transportation company, safety is critical to our business. We have safety procedures and guidelines, as well as required training and certification programs, for our drivers and freight handling personnel to promote safety on and off the road. Our safety policies and procedures extend to each of our company campuses to ensure the health, safety, and welfare of all employees. We also have safety measures and policies that apply to all independent contractors, owner operators, and fleet owners in our Panther fleet, for whom we have provided safety programs to heighten awareness, promote safe driving behaviors, and reduce violations and accidents.

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In response to the COVID-19 pandemic, we implemented business continuity processes focused on maintaining customer service levels while emphasizing the health, welfare, and safety of our employees and our customers. The additional measures we implemented to safeguard our employees and customers, which are in alignment with guidelines established by the Centers for Disease Control and Prevention, are described in “COVID-19” within Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of this Annual Report on Form 10-K.

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We expect all employees, suppliers, and business affiliates to obey and respect human rights laws, and we will not tolerate any conduct that violates these laws. Due to the nature of our industry, we are in a critical position to help raise awareness of human trafficking to potentially disrupt these networks. Through partnerships with Truckers Against Trafficking^® and Polaris, we educate our employees and drivers on the realities of modern-day slavery and how they can play a role in supporting the fight against human trafficking.

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Reputation and Responsibility

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Our Company and our brands are consistently recognized for best-in-class performance.

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Brands

The value of our brands is critical to our success. ArcBest is recognized as a leading logistics provider with creative problem solvers who deliver innovative logistics solutions. Beyond this fundamental marketplace recognition of our collective brand identity, our other key brands represent additional unique value in their target markets. The ABF Freight brand is well-recognized in the industry for our Asset-Based operations’ leadership in commitment to quality, customer service, safety, and technology. Independent research has consistently shown that ABF Freight is regarded as a best-in-class service provider known for excellence in the areas of customer service, reliability, and problem solving. The Panther Premium Logistics brand within the operations of our ArcBest segment is recognized for solving the toughest shipping and logistics challenges, delivering time-sensitive, mission-critical, and high-value freight with speed and precision. Our U-Pack brand offers a range of household moving and storage services, so our customers can move their household goods safely and affordably across the United States, Canada, and Puerto Rico.

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We have registered or are pursuing registration of various marks or designs as trademarks in the United States, including, but not limited to “ArcBest”, “ABF Freight”, “FleetNet America”, “Panther Premium Logistics”, “U-Pack”, “The Skill & The Will”, and “More Than Logistics”. For some marks, we also have registered or are pursuing registration in certain other countries. We believe these marks or designs are of significant value to our business and play an important role in enhancing brand recognition and executing our marketing strategy. Additionally, our business and operations utilize and depend upon both internally developed and purchased technology. We have obtained or are pursuing patent protection on internally developed and certain purchased technology, including  equipment and process patents in connection with the previously disclosed pilot test program at ABF Freight.  

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Contributions & Awards

We have a corporate culture focused on quality service and responsibility. Our employees are committed to the communities in which they live and work. We make financial contributions to a number of charitable organizations, many of which are supported by our employees. These employees volunteer their time and expertise and many serve as officers or board members of various charitable organizations. In the local community of our corporate headquarters, we have been a long-time supporter of the United Way of Fort Smith Area and its partner organizations. In 2020, with employee support, we again earned the United Way’s coveted Pacesetter award by setting the standard for leadership and community support. ArcBest was voted the Times Record “Best of the Best” place to work in the Fort Smith, Arkansas region in 2020 for the third consecutive year and is a three-time recipient of the “Healthy Workplace Award” from the Fort Smith Regional Chamber of Commerce. We support our employees as they carry out our wellness value by participating in healthy initiatives within the workplace and by representing our company in wellness events in their local communities.

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In recognition by our customers for providing outstanding solutions and services, ArcBest was selected as a SupplyChainBrain “Great Supply Chain Partner” in 2020 for the third consecutive year, while ABF Freight was a three-time recipient of the honor preceding the first year ArcBest was named to the list. In 2019, ArcBest was recognized in Inbound Logistics’ annual list of “Green 75 Supply Chain Partners” for the third consecutive year, following ABF Freight’s appearance on the list of supply chain partners committed to sustainability for the previous seven years.

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In 2020, ArcBest was named to Inbound Logistics’ list of “Top 100 Truckers” for the third consecutive year, continuing ABF Freight’s recognition on the list for the previous four years. The Company was also ranked 17^th in The Commercial Carrier Journal’s 2020 list of “Top 250 For-Hire Carriers” for our fifth year of being listed. Marking the fourth year in a row to be honored by Training magazine, followed by eight consecutive years of ABF Freight’s recognition on the list, ArcBest was listed 16^th in the “Training Top 125” in February 2021. ArcBest received the Samsara “2020 Top Fleet Award” for Fleet Innovator in recognition of being a technology-forward problem solver. In 2020, ArcBest was recognized in the “FreightTech 100” by FreightWaves, Inc. as one of the most innovative and disruptive companies across the freight industry.

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ArcBest was recognized by Forbes as one of America’s “Best Large Employers” for 2021 and as one of America’s “Best-In-State Employers” in Arkansas for 2020. For the second consecutive year, ArcBest was named to Forbes’ Top 500 List of the “Best Employers for Diversity” in 2020. Our Chairman of the Board, President and CEO, Judy R. McReynolds, was named to the list of the “2020 Top 10 Women in Logistics” by Global Trade Magazine, the “Arkansas 250” list of Arkansas’ most influential leaders by Arkansas Business in 2020, the “2019 Distinguished Woman in Logistics” by the Women in Trucking Association, and the “2019 Most Influential Corporate Board Directors” by WomenInc. Magazine. ArcBest was designated as a 2020 Women on Boards “Winning “W” Company” for having more than 20% of its board seats held by women. For the third-time, ArcBest was recognized in 2019 by the Women’s Forum of New York for achieving at least 30% female representation on its board of directors.

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Asset-Based Segment

Our Asset-Based carrier ABF Freight received the “Quest for Quality Award” in the National LTL and Truckload Expedited Motor Carrier categories from Logistics Management magazine for 2020, marking its eighth consecutive year and ninth year overall to be recognized. ABF Freight received the 2018 “Prism Award for Best Practices in Technology” from the American Payroll Association in recognition of its innovative practices in the areas of technology, management, process improvement and overall best practices in the U.S. payroll industry. ABF Freight partners with the IBT and the U.S. Army in the Teamsters Military Assistance Program, a joint training program to help soldiers transition from military service to civilian careers as professional truck drivers. ABF Freight earned the designation as a 2021 Military Friendly^® Employer for its support of veterans by providing training and employment opportunities in the freight and logistics industry. In 2020, ABF Freight formed a partnership with the U.S. Military to train transitioning service members for our management roles through the Department of Defense Skillbridge program. In 2019, ABF Freight joined the U.S. Army Partnership for Youth Success (PaYS) program. This initiative connects first-term regular Army and Army Reserve soldiers to the civilian workforce by providing two guaranteed job interviews and possible employment after their service in the Army.

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Our Asset-Based segment is dedicated to safety and security in providing transportation and freight-handling services to its customers. ABF Freight is a nine-time winner of  the American Trucking Associations’ Excellence in Security Award, an eight-time winner of the Excellence in Claims & Loss Prevention Award, and a seven-time winner of the President’s Trophy for Safety. In January 2019, three ABF Freight drivers were named by the American Trucking Associations as captains of the 2019-2020 “America’s Road Team,” continuing the tradition of ABF Freight’s representation in this select program based on the drivers’ exceptional safety records and their strong commitment to safety and professionalism. In October 2018, an ABF Freight driver was named by the American Trucking Associations as the “National Truck Driver of the Year,” an honor bestowed upon one exceptional driver for noteworthy and career-long professional achievements, including a stellar safety record and dedication to keeping the roads safe.

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We are actively involved in efforts to promote a cleaner environment by reducing both fuel consumption and emissions. For many years, our Asset-Based segment has voluntarily limited the maximum speed of its trucks, which reduces fuel consumption and emissions and contributes to ABF Freight’s excellent safety record. Our Asset-Based segment utilizes engine idle management programming to automatically shut down engines of parked tractors. Fuel consumption and emissions have also been minimized through a strict equipment maintenance schedule. To further enhance fuel economy and reduce emissions, our Asset-Based segment voluntarily installs aerodynamic aids on its fleet of over-the-road trailers. ABF Freight participates in the EPA’s SmartWay Transport Partnership, a collaboration between the EPA and the freight transportation industry that helps freight shippers, carriers, and logistics companies reduce greenhouse gases and diesel emissions. In 2020, ABF Freight was recognized, for the third consecutive year and for the fourth time overall, with the SmartWay Freight Carrier Excellence Award by the EPA’s SmartWay Transport Partnership for being a top freight carrier for outstanding environmental achievements and an industry leader for its actions to reduce freight emissions. In 2019, ABF Freight was named a SmartWay High Performer by the EPA in recognition of its leadership in the freight industry for producing more efficient and sustainable supply chain solutions. ABF Freight has also participated in opportunities to address environmental issues in association with the American Trucking Associations’ Sustainability Task Force.

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ArcBest Segment

Our ArcBest segment was recognized by Transport Topics on the “Top Freight Brokerage Firms” list in 2020, marking its sixth consecutive year to be listed. ArcBest was recognized with three “Quest for Quality” awards in 2020 by Logistics Magazine in the categories of Truckload Expedited Motor Carrier, Truckload Household Goods & High Value, and Rail Intermodal Marketing. The 2020 awards mark the sixth time Panther has been recognized by for the commitment to quality of our expedite operations and the second time U-Pack has been honored with the award. In 2018, ArcBest was named a “Top 50 U.S. Third-party Logistics Provider” by Armstrong & Associates, Inc. for the second year in a row. ArcBest Logistics and Panther are also EPA SmartWay Transport Partners.

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Available Information

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We file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports, proxy and information statements, and other information electronically with the SEC. All reports and financial information filed with, or furnished to, the SEC can be obtained, free of charge, through our website located at www.arcb.com or through the SEC’s website located at www.sec.gov as soon as reasonably practical after such material is electronically filed with, or furnished to, the SEC. The Annual Report on Form 10-K and other information may also be

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obtained without charge in writing to ArcBest Corporation, Attention: Investor Relations, 8401 McClure Drive, Fort Smith, AR 72916; or by telephone at 479-785-6000. The information contained on our website does not constitute part of this Annual Report on Form 10-K nor shall it be deemed incorporated by reference into this Annual Report on Form 10-K.

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ITEM 1A.RISK FACTORS

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Our business is subject to a variety of material risks about which we are aware. We could also be affected by additional risks and uncertainties not currently known to us or that we currently deem to be immaterial. This Risk Factors section discusses the material risks relating to our business activities, including business risks affecting the transportation industry and our Company that are largely out of our control. If any of these risks or circumstances actually occur, it could materially harm our business, results of operations, financial condition, and cash flows; impair our ability to implement business plans or complete development activities as scheduled; and/or result in a decline in the market price of our common stock.

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Risks Related to Significant Unusual Events

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The widespread outbreak of an illness or disease, including the COVID-19 pandemic and its effects, or any other public health crisis, as well as regulatory measures implemented in response to such events, could negatively impact the health and safety of our employees and/or adversely affect our business, results of operations, financial condition, and cash flows.

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Our business has been and may continue to be negatively impacted by the COVID-19 pandemic, and could be negatively impacted by the widespread outbreak of another illness, disease, or public health crisis in the future. The COVID-19 pandemic has adversely impacted economic activity and conditions worldwide and created significant volatility and disruption to financial markets. Measures intended to prevent the spread of a health epidemic could also have an adverse effect on our business. Efforts to control the spread of COVID-19 led governments and other authorities to impose restrictions that have resulted in business closures and disrupted supply chains worldwide. The COVID-19 pandemic and measures taken to prevent its spread negatively impacted demand for our services, and thus our shipment and tonnage levels, primarily in the second quarter of 2020, and could negatively impact our business in the future. The impact of the COVID-19 pandemic on our business during 2020 is further discussed in “COVID-19” within Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) of this Annual Report on Form 10-K.

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Through the date of this filing, we have not experienced significant disruptions in our operations due to quarantines or positive COVID-19 cases among our employees. However, we have closed certain of our service center facilities for short periods of time as a result of positive COVID-19 cases and performed deep cleaning procedures at these locations. We cannot be certain that we will not experience disruptions to our operations in the future as the COVID-19 pandemic continues to evolve. If a high number of our employees were to contract COVID-19, our operations and customer service levels, and, consequently, our results of operations, could be adversely impacted.

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The extent of the continued impact of the COVID-19 pandemic on our business and our employees is uncertain and will depend on future developments, including the duration and severity of the pandemic and government restrictions imposed in response to the pandemic. Extended periods of economic disruption and resulting declines in industrial production and manufacturing, consumer spending, and demand for our services, as well as the ability of our customers and other business partners to fulfill their obligations, could have a material adverse effect on our results of operations, financial condition, and cash flows.

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We, or the third parties who provide services for us, may be adversely affected by external events for which our business continuity plans may not adequately prepare us.

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The occurrence of severe weather, natural disasters, health epidemics, acts of war or terrorism, and other adverse external events or conditions that impact us or the operations of third parties who provide services for us have the potential to significantly impact our ability to conduct business. Although we have business continuity plans in place, including an emergency succession plan, there is no guarantee that our plans can be successfully implemented. Even if we were to successfully implement our continuity plans, we may incur substantial expenses and there is no guarantee that our business, financial condition, and results of operations will not be materially impacted.

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Risks Related to Technology and Cybersecurity

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We are dependent on our information technology systems, and a systems failure or cybersecurity incident could have a material adverse effect on our business, results of operations, and financial condition.

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We depend on the proper functioning, availability and security of our information systems, including communications, data processing, financial, and operating systems, as well as proprietary software programs that are integral to the efficient operation of our business. Our information technology systems are vulnerable to interruption by adverse weather conditions or natural disasters, power loss, telecommunications failures, terrorist attacks, internet failures, computer viruses, and other events beyond our control. Any significant failure or other disruption in our critical information systems, including cybersecurity attacks and other cyber incidents, that impact the availability, reliability, speed, accuracy, or other proper functioning of these systems or that result in proprietary information or sensitive or confidential data, including personal information of customers, employees and others, being compromised could have a significant impact on our operations. Any new or enhanced technology that we may develop and implement may also be subject to cybersecurity attacks and may be more prone to related incidents. We also utilize certain software applications provided by third parties; provide underlying data to third parties; grant access to certain of our systems to third parties who provide certain outsourced administrative functions or other services; and increasingly store and transmit data with our customers and third parties by means of connected information technology systems, any of which may increase the risk of a cybersecurity incident. Any problems caused by or impacting these third parties, including cyber attacks and security breaches at a vendor, could result in claims, litigation, losses and/or liabilities and materially adversely affect our ability to provide service to our customers and otherwise conduct our business.

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In response to the health and safety risks posed by the COVID-19 pandemic and in an effort to mitigate the spread of COVID-19, we have transitioned a significant portion of our employee population to remote work arrangements, which may increase our exposure to cybersecurity risks, including an increased demand for information technology resources, increased risk of phishing, and other cybersecurity attacks. Although we have implemented measures to mitigate the heightened risk, we cannot be certain that such measures will be effective to prevent a cybersecurity incident from materializing.

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A significant disruption in our information technology systems or a significant cybersecurity incident, including denial of service, system failure, security breach, intentional or inadvertent acts by employees or vendors with access to our systems or data, disruption by malware, or other damage, could interrupt or delay our operations, damage our reputation, cause a loss of customers, cause errors or delays in financial reporting, expose us to a risk of loss or litigation, and/or cause us to incur significant time and expense to remedy such an event, any of which could have a material adverse effect on our business, results of operations, and financial condition. We attempt to mitigate our exposure to these risks through our technology security programs and disaster recovery plans, but there can be no assurance that such measures will prevent such risks. While we maintain property and cyber insurance, losses arising from a significant disaster or cyber incident would likely exceed our insurance coverage and could have a material adverse impact on our results of operations and financial condition. We do not have insurance coverage specific to losses resulting from a pandemic.

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We have experienced incidents involving attempted denial of service attacks, malware attacks, and other events intended to disrupt information systems, wrongfully obtain valuable information, or cause other types of malicious events that could have resulted in harm to our business. To our knowledge, the various protections we have employed have been effective to date in identifying these types of events at a point when the impact on our business could be minimized. We must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address, and mitigate the risk of unauthorized access, misuse, computer viruses, and other events that could have a security impact. Despite our efforts, due to the increasing sophistication of cyber criminals and the development of new techniques for attack, we may be unable to anticipate or promptly detect, or implement adequate protective or remedial measures against, the activities of perpetrators of cyber attacks.

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We engage third parties to provide certain information technology needs, including licensed software, and the inability to maintain these third-party systems or licenses, or any interruptions or failures thereof, could adversely affect our business.

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Certain of our information technology needs are provided by third parties, and we have limited control over the operation, quality, or maintenance of services provided by our vendors or whether they will continue to provide services that are

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essential to our business. The efficient and uninterrupted operation of our information technology systems depends upon the internet, electric utility providers, and telecommunications providers (terrestrial, cellular and satellite). The information technology systems of our third-party service providers are vulnerable to interruption by adverse weather conditions or natural disasters, power loss, telecommunications failures, terrorist attacks, internet failures, computer viruses, and other events beyond our control. Disruptions or failures in the services upon which our information technology platforms rely, or in other services provided to us by outside service providers upon which we rely to operate our business and report financial results, may adversely affect our operations and the services we provide. Such disruptions or failures could increase our costs or result in a loss of customers that could have a material adverse effect on our results of operations and financial condition. Additionally, we license a variety of software that supports our operations, and these operations depend on our ability to maintain these licenses. We have no guarantees that we will be able to continue these licensing arrangements with the current licensors, or that we can replace the functions provided by these licenses, on commercially reasonable terms or at all.

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If we are unable to timely and effectively develop and implement new or enhanced technology or processes, or if we fail to realize potential benefits associated with new or enhanced technology or processes, including the pilot test program at ABF Freight, we may suffer competitive disadvantage, loss of customers, or other consequences, including any write-offs associated therewith, that could negatively impact our business, results of operations and financial condition.

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The industry has experienced rapid changes in technology, including the development of new technology and enhancements in existing technology. As technology improves, our customers may be able to find alternatives to our services to meet their freight transportation and logistics needs. New entrants to the market, including start-ups and emerging business models such as digital freight brokerage platforms, have also expanded the field of competition and driven an increased pressure for innovation in the industry.  

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Technology and new market entrants may also disrupt the way we, and our competitors, operate to provide freight logistics services. We expect our customers to continue to demand more sophisticated technology-driven solutions from their suppliers, and we believe that we must respond by investing in the enhancement of existing technology and in the development of new and innovative solutions to improve efficiencies and meet our customers’ needs. We have made, and continue to make, significant investments in software and physical assets that are in various stages of development and implementation. These investments include a pilot test program we began in early 2019 to improve freight handling at ABF Freight as further described in “Asset-Based Segment” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. A number of factors will be involved in determining proof of concept and there can be no assurances that pilot testing will be successful or expand beyond current testing locations.

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Our efforts and investments in technology innovation may continue to require significant ongoing research and development costs and implementation costs, and may involve potential unforeseen challenges and new or unforeseen risks associated with the technology. The success of our approach to technology innovation is dependent upon market acceptance of our solutions and a number of other factors, including our ability to:

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If we do not pursue technological advances or engage in innovation, if we fail to successfully or timely develop and deploy enhanced or new technology, or if any enhanced or new technology does not yield the results we expect, we may be placed at a competitive disadvantage; lose customers; incur higher than anticipated costs, including the possible impact of asset impairment or the write-off of software development costs; or fail to meet the goals of our internal growth strategy, any one of which could materially adversely impact our financial condition and results of operations.

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Risks Related to Our Business

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The loss of or reduction in business from one or more large customers, or an overall reduction in our customer base, could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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Although we do not have a significant customer concentration, the growth of our business could be materially impacted and our results of operations and cash flows would be adversely affected if we were to lose all or a portion of the business of some of our large customers. Such loss may occur if our customers choose to divert all or a portion of their business with us to one of our competitors; demand pricing concessions for our services; require us to provide enhanced services that increase our costs; or develop their own shipping and distribution capabilities. Our customer relationships are generally not subject to long-term contractual obligations or minimum volume commitments, and we cannot ensure that our current customer relationships will continue at the same business levels or at all. A reduction in our customer base or difficulty in collecting, or the inability to collect, payments from our customers due to changes in pricing, economic hardship or other factors could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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Our initiatives to grow our business operations or to manage our cost structure to business levels may take longer than anticipated or may not be successful.

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Developing service offerings requires ongoing investment in personnel and infrastructure, including operating and management information systems. Depending upon the timing and level of revenues generated from our growth initiatives, the related results of operations and cash flows we anticipate from these initiatives and additional service offerings may not be achieved. If we are unable to manage our growth effectively, our business, results of operations, and financial condition may be adversely affected.

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Our growth plans place significant demands on our management and operating personnel, and we may not be able to hire, train, and retain the appropriate personnel to manage and grow these services. Hiring new employees may increase training costs and may result in temporary labor inefficiencies. We have also incurred increased costs associated with long-term investment in the development of our owner operator fleet and contract carrier capacity for our ArcBest segment. As we focus on growing the business in our ArcBest segment, we may also encounter difficulties in adapting our corporate structure or in developing and maintaining effective partnerships among our operating segments, which could hinder our operational, financial, and strategic objectives. Furthermore, we may invest significant resources to enter or expand our services in markets with established competitors and in which we will encounter new competitive challenges, and we may not be able to successfully gain market share, which could have an adverse effect on our operating results and financial condition.

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We also face challenges and risks in implementing initiatives to manage our cost structure to business levels or changing market demands, as portions of salaries, wages, and benefits are fixed in nature and the adjustments that would otherwise be necessary to align the labor cost structure to corresponding business levels are limited as we strive to maintain customer service. It is more difficult to match our staffing levels to our business needs in periods of rapid or unexpected change. Due to the negative impact of the COVID-19 pandemic on demand for our services, we made operational changes in our Asset-Based network beginning in second quarter 2020, including workforce reductions to better align resources with business levels. As tonnage levels increased in the second half of 2020, certain operational resources were added back and they will continue to be carefully managed to available business. We may incur additional costs related to purchased transportation and/or experience labor inefficiencies while, and for a time following, training employees who are hired in response to growth. Incurring additional labor and/or purchased transportation costs which are disproportionate to our business levels could have a material adverse effect on our results of operations and financial condition. We periodically evaluate and modify the network of our Asset-Based operations to reflect changes in customer demands and to reconcile the segment’s infrastructure with tonnage levels and the proximity of customer freight, and there can be no assurance that these network changes, to the extent such network changes are made, will result in a material improvement in our Asset-Based segment’s results of operations.

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Damage to our corporate reputation may cause our business to suffer.

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ArcBest is recognized as a leading logistics provider with creative problem solvers who deliver innovative logistics solutions. Beyond this fundamental marketplace recognition of our collective brand identity, our other key brands represent additional unique value in their target markets. Our business depends, in part, on our ability to maintain the image of our brands. Service, performance, and safety issues, whether actual or perceived and whether as a result of our actions or those

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of our third-party contract carriers and their drivers and owner operators or other third-party service providers, could adversely impact our customers’ image of our brands, including ArcBest, ABF Freight, Panther Premium Logistics, and U-Pack, and result in the loss of business or impede our growth initiatives. Adverse publicity regarding labor relations, legal matters, cybersecurity and data privacy concerns, environmental, social and governance (“ESG”) issues, and similar matters, whether or not justified, could have a negative impact on our reputation and may result in the loss of customers and our inability to secure new customer relationships. Our business and our image could also be negatively impacted by a breach of our corporate policies by employees or vendors. Our business, including the self-service moving services provided under our U-Pack brand, is increasingly dependent on the internet for attracting and securing customers, and the possibility that fraudulent behavior may confuse or deceive customers heightens the risk of damage to our reputation and increases the time and expense required to protect and maintain the integrity of our brands. With the increased use of social media outlets, adverse publicity, especially when based upon incorrect information or false statements, can be disseminated quickly and broadly, making it increasingly difficult for us to effectively respond. Damage to our reputation and loss of brand equity could reduce demand for our services and, thus, have an adverse effect on our business, results of operations, and financial condition, as well as require additional resources to rebuild our reputation and restore the value of our brands.

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Our corporate reputation and business depend on a variety of intellectual property rights, and if we face infringement claims, the costs and resources expended to enforce or protect our rights or to defend against infringement claims could adversely impact our business, results of operations, and financial condition.

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We have registered or are pursuing registration of various marks and designs as trademarks in the United States, including, but not limited to, “ArcBest”, “ABF Freight”, “FleetNet America”, “Panther Premium Logistics”, “U-Pack”, “The Skill & The Will”, and “More Than Logistics.” For some marks, we also have registered or are pursuing registration in certain other countries. At times, competitors may adopt service or trade names or logos or designs similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered trademarks. From time to time, we have acquired or attempted to acquire internet domain names held by others when such names have caused, or had the potential to cause, consumer confusion. Additionally, our business and operations utilize and depend upon both internally developed and purchased technology. We have obtained or are pursuing patent protection on internally developed and certain purchased technology, including equipment and process patents in connection with the previously disclosed pilot test program at ABF Freight. Competitors or other third parties could attempt to reproduce or reverse-engineer our patented technologies, or we could be subject to third-party claims of infringement. Any of our intellectual property rights related to trademarks, trade secrets, domain names, copyrights, patents, or other intellectual property, whether owned or licensed, could be challenged or invalidated, or misappropriated or infringed upon, by third parties. Our efforts to obtain, enforce, or protect our proprietary rights, or to defend against third-party infringement claims, may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our corporate reputation, business, results of operations, and financial condition.

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Risks Related to Our Industry

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We operate in a highly competitive and fragmented industry, and our business could suffer if we are unable to adequately address factors that could affect our profitability, growth prospects, and ability to compete in the transportation and logistics market.

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We face significant competition in local, regional, national, and, to a lesser extent, international markets. We compete with LTL carriers of varying sizes, including both union and nonunion LTL carriers and, to a lesser extent, with truckload carriers and railroads. We also compete with domestic and global logistics service providers, including asset-light logistics companies, integrated logistics companies, and third-party freight brokers that compete in one or more segments of the transportation industry. Numerous factors could adversely impact our ability to compete effectively in the transportation and logistics industry, retain our existing customers, or attract new customers, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows. The competitive factors material to our business are the following:

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Additionally, we have implemented measures, such as cubic minimum charges, in response to the evolving freight shipping trends over the last several years, including changes in shipment profiles and the acceleration in e-commerce. As the retail industry continues its trend toward increases in e-commerce, particularly in light of the impacts of COVID-19 on brick-and-mortar stores, the manner in which our customers source or utilize our services will continue to be impacted. If we are unable to successfully adapt and implement appropriate measures in response to these changes, our operating results could be adversely affected.

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Increased prices for, or decreases in the availability of, new revenue equipment, as well as higher costs of equipment-related operating expenses, could adversely affect our results of operations and cash flows.

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In recent years, manufacturers have raised the prices of new revenue equipment significantly due to increased costs of materials and, in part, to offset their costs of compliance with new tractor engine and emissions system design requirements intended to reduce emissions, which have been mandated by the EPA, the NHTSA, and various state agencies such as those described in “Environmental and Other Government Regulations” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. Greenhouse gas emissions regulations are likely to continue to impact the design and cost of equipment utilized in our operations as well as fuel costs. A number of states have mandated, and California and certain other states may continue to individually mandate, additional emission-control requirements for equipment, which could increase equipment and fuel costs for entire fleets that operate in interstate commerce. If new equipment prices increase more than anticipated, we could incur higher depreciation and rental expenses than anticipated. Our third-party capacity providers, including owner operators for portions of our ArcBest segment operations, are also subject to increased regulations and higher equipment and fuel prices, which will, in turn, increase our costs for utilizing their services or may cause certain providers to exit the industry, which could lead to a capacity shortage and further increase our costs of securing third-party services. If we are unable to fully offset any such increases in expenses with freight rate increases and/or improved fuel economy, our results of operations could be adversely affected.  

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We depend on suppliers for equipment, parts, and services that are critical to our operations, which may be difficult to procure in the event of decreased supply. From time to time, some original equipment manufacturers (“OEMs”) of tractors and trailers may reduce their manufacturing output due to, for example, lower demand for their products in economic downturns or a shortage of component parts. Component suppliers may either reduce production or be unable to increase production to meet OEM demand, creating periodic difficulty for OEMs to react in a timely manner to increased demand for new equipment and/or increased demand for replacement components as economic conditions change. At times, market forces may create market situations in which demand outstrips supply. In those situations, we may face reduced supply levels and/or increased acquisition costs. An inability to continue to obtain an adequate supply of new tractors or trailers, as well as related parts and services, for our Asset-Based operations could have a material adverse effect on our business, results of operations, and financial condition.

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We depend heavily on the availability of fuel for our trucks. Fuel shortages, changes in fuel prices, and the inability to collect fuel surcharges could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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The transportation industry is dependent upon the availability of adequate fuel supplies. A disruption in our fuel supply resulting from natural or man-made disasters; armed conflicts; terrorist attacks; actions by producers, including a decrease in drilling activity or the use of crude oil and oil reserves for purposes other than fuel production; legislation or regulations that require or result in new or alternate uses or other increase in the demand for fuel traditionally used by trucks; or other political, economic, and market factors that are beyond our control could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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Fuel represents a significant operating expense for us, and we do not have any long-term fuel purchase contracts or any hedging arrangements to protect against fuel price increases. Fuel prices fluctuate greatly due to factors beyond our control, such as global supply and demand for crude oil and diesel, political events, price and supply decisions by oil producing countries and cartels, terrorist activities, and hurricanes and other natural or man-made disasters. Significant increases in fuel prices or fuel taxes resulting from these or other economic or regulatory changes that are not offset by base freight rate increases or fuel surcharges could have an adverse impact on our results of operations.

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Our Asset-Based segment and certain operations of our ArcBest segment assess a fuel surcharge based on an index of national diesel fuel prices. When fuel surcharges constitute a higher proportion of the total freight rate paid, our customers are less receptive to increases in base freight rates. Prolonged periods of inadequate base rate improvements could adversely impact operating results as elements of costs, including contractual wage rates, continue to increase. In periods of declining fuel prices, fuel surcharge percentages also decrease, which negatively impacts the total billed revenue per hundredweight or revenue per shipment measure and, consequently, our revenues, and the revenue decline may be disproportionate to the corresponding decline in our fuel costs.

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Risks Related to Employees and Benefits

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We depend on our employees to support our business operations and future growth opportunities. If we have difficulty attracting and retaining employees, or if ABF Freight is unable to reach agreement on future collective bargaining agreements, we could be faced with labor inefficiencies, disruptions, or stoppages, or delayed growth, which could have a material adverse effect on our business, results of operations, financial condition, and cash flows.

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With the exception of certain geographic markets, we have not historically experienced significant long-term difficulty in attracting or retaining qualified drivers, technicians and freight-handling personnel for our Asset-Based operations, although short-term difficulties have been encountered in certain situations, such as periods of significant increases in tonnage or shipment levels. However, the available pool of drivers and technicians has been declining, which may cause us more difficulty in retaining and hiring qualified drivers and other personnel. Both our profitability and our ability to grow could be adversely affected if we encounter difficulty in attracting and retaining qualified drivers, technicians and freight-handling personnel or if we become subject to contractually required increases in compensation or fringe benefit costs. Government regulations or the adverse impact of certain legislative actions that result in shortages of qualified drivers could also impact our ability to grow the Company. If we are unable to continue to attract and retain qualified drivers, we could incur higher driver recruiting expenses or a loss of business.

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As of December 2020, approximately 82% of our Asset-Based segment’s employees were covered under the 2018 ABF NMFA, the collective bargaining agreement with the IBT that will remain in effect through June 30, 2023. If we are unable to effectively manage our relationship with the IBT, we could be less effective in ongoing relations and future negotiations, which could lead to operational inefficiencies and increased operating costs. The terms of any future collective bargaining agreements or the inability to agree on acceptable terms for the next contract period may also result in higher labor costs, insufficient operational flexibility, which may increase our operating costs, a work stoppage, the loss of customers, or other events that could have a material adverse effect on our business, results of operations, financial condition, and cash flows. We could also experience a loss of customers or a reduction in our potential share of business in the markets we serve if shippers limit their use of unionized freight transportation service providers because of the risk of work stoppages.

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We could be obligated to make additional significant contributions to multiemployer pension plans.

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ABF Freight contributes to multiemployer pension and health and welfare plans to provide benefits for its contractual employees. These multiemployer plans, established pursuant to the Taft-Hartley Act, are jointly-trusteed (half of the trustees of each plan are selected by the participating employers, the other half by the IBT) and cover collectively-bargained employees of multiple unrelated employers. Due to the inherent nature of multiemployer pension plans, there are risks associated with participation in these plans that differ from single-employer plans. Assets received by the plans are not segregated by employer, and contributions made by one employer can be and are used to provide benefits to current and former employees of other employers. If a participating employer in a multiemployer pension plan no longer contributes to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. If a participating employer in a multiemployer pension plan completely withdraws from the plan, it owes to the plan its proportionate share of the plan’s unfunded vested benefits, referred to as a withdrawal liability. A complete withdrawal generally occurs when the employer permanently ceases to have an obligation to contribute to the plan. Withdrawal liability is also owed in the event the employer withdraws from a plan in connection with a mass withdrawal, which generally occurs when all or substantially all employers withdraw from the plan in a relatively short period of time pursuant to an agreement. Were ABF Freight to completely withdraw from certain multiemployer pension plans, whether in connection with a mass withdrawal or otherwise, under current law, we would have material liabilities for our share of the unfunded vested liabilities of each such plan.

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The multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. ABF Freight’s obligations to these plans are generally specified in the 2018 ABF NMFA and other related supplemental agreements, which will remain in effect through June 30, 2023. ABF Freight pays some of the highest benefit contribution rates in the industry and continues to address the effect of the Asset-Based segment’s wage and benefit cost structure on its operating results in discussions with the IBT. Through the term of its current collective bargaining agreement, ABF Freight’s obligations generally will be satisfied by making the specified contributions when due. Future contribution rates will be determined through the negotiation process for contract periods following the term of the current collective bargaining agreement. We cannot determine with any certainty the minimum contributions that will be required under future collective bargaining agreements or the impact they will have on our results of operations and financial condition.

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Many of the multiemployer pension plans to which ABF Freight contributes are underfunded and, in some cases, significantly underfunded, as further discussed in Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The underfunded status of these plans developed over many years, and we believe that an improved funded status will also take time to achieve, if it can be achieved at all. In addition, the highly competitive industry in which we operate could impact the viability of contributing employers. The reduction or loss of contributions by member employers, the impact of market risk or instability in the financial markets on plan assets and liabilities, and the effect of any one or combination of the aforementioned business risks, all of which are beyond our control, have the potential to adversely affect the funded status of the multiemployer pension plans, potential withdrawal liabilities, and our future contribution requirements. Many of the multiemployer pension funds to which we contribute could become insolvent in the near future; however, we would continue to be obligated to make contributions to those funds under the terms of the 2018 ABF NMFA.

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Risks Related to Third Parties

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We depend on services provided by third parties, and increased costs or disruption of these services, and claims arising from these services, could adversely affect our business, results of operations, financial condition, cash flows, and customer relationships.

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A reduction in the availability of rail services or services provided by third-party capacity providers to meet customer requirements, as well as higher utilization of third-party agents to maintain service levels in periods of tonnage growth or higher shipment levels, could increase purchased transportation costs which we may be unable to pass along to our customers. If a disruption or reduction in transportation services from our rail or other third-party service providers were to occur, we could be faced with business interruptions that could cause us to fail to meet the needs of our customers. In addition, third-party providers can be expected to increase their prices based on market conditions or to cover increases in operating expenses. If we are unable to correspondingly increase the prices we charge to our customers, including the effect of third-party carrier rate increases outpacing customer pricing, or if we are unable to secure sufficient third-party services to expand our capacity, add additional routes, or meet our commitments to our customers, there could be a material adverse impact on our operations, revenues, profitability and customer relationships.

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Our ability to secure the services of third-party service providers is affected by many risks beyond our control, including the inability to obtain the services of reliable third parties at competitive prices; the shortage of quality third-party providers, including owner operators and drivers of contracted carriers for our ArcBest segment; shortages in available cargo capacity of third parties; equipment shortages in the transportation industry, particularly among contracted truckload carriers; changes in government regulations affecting the transportation industry and their related impact on operations, such as hours-of-service rules and the ELD mandate; labor disputes; or a significant interruption in service or stoppage in third-party transportation services. Each of these risks could have a material adverse effect on the operating results of our ArcBest segment.

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In addition, we may be subject to claims arising from services provided by third parties, particularly in connection with the operations of our ArcBest segment, which are dependent on third-party contract carriers. From time to time, the drivers who are owner operators, independent contractors, or employees working for third-party carriers that we contract with are involved in accidents or incidents that may result in cargo loss or damage, other property damage, or serious personal injuries including death. As a result, claims may be asserted against us for actions by such drivers or for our actions in contracting with them initially or retaining them over time. We or our subsidiaries could be held directly responsible for these third-party claims and, regardless of ultimate liability, may incur significant costs and expenses in defending these claims. We may also incur claims in connection with third-party vendors utilized in FleetNet’s operations. Our third-party contract carriers and other vendors may not agree to bear responsibility for such claims or we may become responsible if they are unable to pay the claims, for example, due to bankruptcy proceedings, and such claims may exceed the amount of our insurance coverage or may not be covered by insurance at all.

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Our engagement of independent contractor drivers to provide a portion of the capacity for our ArcBest segment exposes us to different risks than we face with our employee drivers. If we have difficulty in securing independent owner operators, or if we incur increased costs to utilize independent owner operators, our financial condition, results of operations, and cash flows could be adversely affected.

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The driver fleet for portions of our ArcBest segment is made up of independent owner operators and individuals. We face intense competition in attracting and retaining qualified owner operators from the available pool of drivers and fleets, and we may be required to increase owner operator compensation or take other measures to remain an attractive option for owner operators, which may negatively impact our results of operations. If we are not able to maintain our delivery schedules due to a shortage of drivers or if we are required to increase our rates to offset increases in owner operator compensation, our services may be less competitive, which could have an adverse effect on our business. Furthermore, as these independent owner operators and individuals are third-party service providers, rather than our employees, they may decline loads of freight from time to time, which may impede our ability to deliver freight in a timely manner. If we fail to meet certain customer needs or incur increased expenses to do so, this could adversely affect the business, financial condition, and results of operations of our ArcBest segment.

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Additionally, we pay independent contractor drivers a fuel surcharge that increases with the increase in fuel prices. A significant increase or rapid fluctuation in fuel prices could cause the fuel surcharge we pay to independent contractors to be higher than the revenue we receive under our customer fuel surcharge programs, which could adversely impact the results of operations of our ArcBest segment.

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If the independent contractors we contract with are deemed by regulators or judicial process to be employees, or if we experience operational or regulatory issues related to our use of these contract drivers, our financial condition, results of operations, and cash flows could be adversely affected.

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The transportation and logistics industry’s heavy dependence on independent contractors for providing services has made it a target of litigation. Class actions and other lawsuits have arisen in the industry seeking to reclassify independent contractor drivers as employees for a variety of purposes, including workers’ compensation, wage-and-hour, and health care coverage. Many states have enacted restrictive laws that make it difficult to successfully prove independent-contractor status, and all states have enforcement programs to evaluate the classification of independent contractors. There can be no assurance that legislative, judicial, or regulatory authorities will not introduce proposals or assert interpretations of existing rules and regulations resulting in the reclassification of the owner operators of the operations within our ArcBest segment as employees. In the event of such reclassification of these owner operators, we could be exposed to various liabilities and additional costs and our business and results of operations could be adversely affected. These liabilities and additional costs could include exposure, for both future and prior periods, under federal, state, and local tax laws, and workers’

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compensation, unemployment benefits, labor, and employment laws, as well as potential liability for penalties and interest and under vicarious liability principles, which could have a material adverse effect on the results of operations and financial condition of our ArcBest segment.

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Risks Related to Legal and Regulatory Matters

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We are subject to litigation risks, and at times may need to initiate litigation, which could result in significant expenditures and have other material adverse effects on our business, results of operations, and financial condition.

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The nature of our business exposes us to the potential for various claims and litigation, including class-action litigation and other legal proceedings brought by customers, suppliers, employees, or other parties, related to labor and employment, competitive matters, personal injury, property damage, cargo claims, safety and contract compliance, environmental liability, and other matters. We are subject to risk and uncertainties related to liabilities, including damages, fines, penalties, and substantial legal and related costs, that may result from these claims and litigation. Some or all of our expenditures to defend, settle, or litigate these matters may not be covered by insurance or could impact our cost of, and ability to obtain, insurance in the future. Also, litigation can be disruptive to normal business operations and could require a substantial amount of time and effort from our management team. Any material litigation or a catastrophic accident or series of accidents could have a material adverse effect on our business, results of operations, and financial condition. Our business reputation and our relationship with our customers, suppliers, and employees may also be adversely impacted by our involvement in legal proceedings.

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We establish reserves based on our assessment of known legal matters and contingencies. New legal claims, or subsequent developments related to known legal claims, asserted against us may affect our assessment and estimates of our recorded legal reserves and may require us to make payments in excess of our reserves, which could have a material adverse effect on our financial condition or results of operations.

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Our business operations are subject to numerous governmental regulations in the transportation industry, and costs of compliance with, or liability for violations of, existing or future regulations could have a material adverse effect on our financial condition and results of operations.

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Various international, federal, state and local agencies exercise broad regulatory powers over the transportation industry, such as those described in “Environmental and Other Government Regulations” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. We could become subject to new or more restrictive regulations, such as regulations relating to engine emissions, drivers’ hours of service, occupational safety and health, ergonomics, or cargo security. Increases in costs to comply with such regulations or the failure to comply, which could subject us to penalties or revocation of our permits or licenses, could increase our operating expenses or otherwise have a material adverse effect on the results of our operations. Such regulations could also influence the demand for transportation services. Failure to comply with safety and security laws and regulations can result in both civil and criminal actions against the Company. In addition to the potential harm to our reputation and brands, the financial burdens resulting from such actions could have a material adverse effect on our financial condition and results of operations.

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Failures by us, or our contracted owner operators and third-party carriers, to comply with the various applicable federal safety laws and regulations, or downgrades in our safety rating, could have a material adverse impact on our operations or financial condition. A downgrade in our safety rating could cause us to lose customers, as well as the ability to self-insure. The loss of our ability to self-insure for any significant period of time could materially increase insurance costs, or we could experience difficulty in obtaining adequate levels of insurance coverage.

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Our ArcBest segment utilizes third-party service providers who are subject to similar regulation requirements, as previously mentioned. If the operations of these providers are impacted to the extent that a shortage of quality third-party service providers occurs, or if we experience a shortage of quality third-party vendors utilized in FleetNet’s operations, there could be a material adverse effect on the business and results of operations of our ArcBest and FleetNet segments. Also, activities by these providers that violate applicable laws or regulations could result in governmental or third-party actions against us. Although third-party service providers with whom we contract agree to comply with applicable laws and regulations, we may not be aware of, and may therefore be unable to address or remedy, violations by them.

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As a provider of worldwide transportation and logistics services, the Company collects and processes significant amounts of customer data on a daily basis. Recently, there have been global efforts by governments and consumer groups for

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increased transparency in how customer data is utilized and how customers can control the use and storage of their data. Complying with new data protection laws and regulations may increase the Company’s compliance costs or require us to modify our data handling practices. Non-compliance could result in governmental or consumer actions against us and may otherwise adversely impact our reputation, operating results and financial condition. The uncertainty of the interpretation and enforcement of these laws, and their increasing scope and complexity, create regulatory risks that will likely increase over time.

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Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties. The costs of compliance with future environmental laws and regulations may be significant and could adversely impact our results of operations.

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We are subject to federal, state and local environmental laws and regulations relating to, among other areas: emission controls, transportation of hazardous materials, underground and aboveground storage tanks, stormwater pollution prevention, contingency planning for spills of petroleum products, and disposal of waste oil. We may be subject to substantial fines or civil penalties if we fail to obtain proper certifications or permits or if we do not comply with required inspections and testing provisions.

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We routinely transport or arrange for the transportation of hazardous materials and explosives. These operations involve the risks of, among others, fuel spillage or leakage, environmental damage, a spill or accident involving hazardous substances, and hazardous waste disposal. In addition, if any damage or injury occurs as a result of our transportation of hazardous materials or explosives, we may be subject to claims from third parties and bear liability for such damage or injury.

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At certain facilities of our Asset-Based operations, we store fuel and oil in underground and aboveground tanks. Our material handling and storage, fueling, equipment maintenance and cleaning subject us to the EPA underground storage tank regulations, the Clean Water Act oil pollution prevention and stormwater regulations, and the Federal Motor Carrier Safety Administration hazardous materials regulations. Under certain environmental laws, we could be subject to strict liability for any clean-up costs relating to contamination at our past or present facilities and at third-party waste disposal sites, as well as costs associated with the cleanup of accidents involving our vehicles.

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Although we have instituted programs to monitor and control environmental risks and promote compliance with applicable environmental laws and regulations, violations of applicable laws or regulations may subject us to cleanup costs and liabilities not covered by insurance or in excess of our applicable insurance coverage, including substantial fines, civil penalties, or civil and criminal liability, as well as bans on making future shipments in particular geographic areas, any of which could adversely affect our business, results of operations, financial condition, and cash flows.

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Concern over climate change, including the impact of global warming, has led to significant legislative and regulatory efforts to limit carbon and other greenhouse gas emissions, and some form of federal, state, and/or regional climate change legislation is possible in the future. We are unable to determine with any certainty the effects of any future climate change legislation. However, emission-related regulatory actions have historically resulted in increased costs of revenue equipment, diesel fuel, and equipment maintenance, and future legislation, if enacted, could impose substantial costs on us that may adversely impact our results of operations. Such regulatory actions may also require changes in our operating practices and impair equipment productivity. We are also subject to increasing customer sensitivity to sustainability issues, and we may be subject to additional requirements related to customer-led initiatives or their efforts to comply with environmental programs. Until the timing, scope, and extent of any future regulation or customer requirements become known, we cannot predict their effect on our cost structure, business, or results of operations.

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Risks Related to Financial Considerations

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We are subject to interest rate risk and certain  covenants under our financing arrangements. A default under these financing arrangements or changes in regulations that impact the availability of funds or our costs to borrow under our financing arrangements could cause a material adverse effect on our liquidity, financial condition, and results of operations.

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We are affected by the instability in the financial and credit markets that from time to time has created volatility in various interest rates and returns on invested assets in recent years. We are subject to market risk due to variable interest rates on our borrowings on the accounts receivable securitization program and the revolving credit facility (“Credit Facility”).

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Although we have an interest rate swap agreement to mitigate a portion of our interest rate risk by effectively converting $50.0 million of borrowings under our Credit Facility, of which $70.0 million remains outstanding at the end of February 2021, from variable-rate interest to fixed-rate interest, changes in interest rates may increase our financing costs related to our Credit Facility, future borrowings against our accounts receivable securitization program, new notes payable or finance lease arrangements, or additional sources of financing. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. Furthermore, future financial market disruptions may adversely affect our ability to refinance our Credit Facility and accounts receivable securitization program, maintain our letter of credit arrangements or, if needed, secure alternative sources of financing. If any of the financial institutions that have extended credit commitments to us are adversely affected by economic conditions, disruption to the capital and credit markets, or increased regulation, they may become unable to fund borrowings under their credit commitments or otherwise fulfill their obligations to us, which could have an adverse impact on our ability to borrow additional funds, and thus have an adverse effect on our operations and financial condition. See Note G to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of our financing arrangements.

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Our Credit Facility and accounts receivable securitization program contain customary financial covenants and other customary restrictive covenants that may limit our future operations. Failing to achieve certain financial ratios as required by our Credit Facility and accounts receivable securitization program could adversely affect our ability to finance our operations, make strategic acquisitions or investments, or plan for or react to market conditions or otherwise execute our business strategies.

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If we default under the terms of the Third Amended and Restated Credit Agreement (the “Credit Agreement”) or our accounts receivable securitization program and fail to obtain appropriate amendments to or waivers under the applicable financing arrangement, our borrowings under such facilities could be immediately declared due and payable. An event of a default under either of these facilities could constitute automatic default on the other of these facilities and could trigger cross-default provisions in our outstanding notes payable and other financing agreements, unless the lenders to these facilities choose not to exercise remedies or to otherwise allow us to cure the default. If we fail to pay the amount due under our Credit Facility or accounts receivable securitization program, the lenders could proceed against the collateral by which the facility is secured, our borrowing capacity may be limited, or one or both of the facilities could be terminated. If acceleration of outstanding borrowings occurs or if one or both of the facilities is terminated, we may have difficulty borrowing additional funds sufficient to refinance the accelerated debt or entering into new credit or debt arrangements, and, if available, the terms of the financing may not be favorable or acceptable. A default under the Credit Agreement or accounts receivable securitization program, changes in regulations that impact the availability of funds or our costs to borrow under our financing arrangements, or our inability to renew our financing arrangements with terms that are acceptable to us, could have a material adverse effect on our liquidity and financial condition.

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Claims expenses or the cost of maintaining our insurance, including medical plans, could have a material adverse effect on our results of operations and financial condition.

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Claims may be asserted against us for accidents or for cargo loss or damage, property damage, personal injury, and workers’ compensation related to events occurring in our operations. Claims may also be asserted against us for accidents involving the operations of third-party service providers that we utilize, for our actions in retaining their services, for loss or damage to our customers’ goods or other damages for which we are alleged or may be determined to be responsible. Such claims against us may not be covered by insurance policies or may exceed the amount of insurance coverage, which could adversely impact our results of operations and financial condition. While we have established reserves that are adjusted to reflect our claims experience, actual claims costs and legal expenses may exceed our estimates. If the frequency and/or severity of claims increase, our operating results could be adversely affected. The timing of the incurrence of these costs could significantly and adversely impact our operating results.

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We are primarily self-insured for workers’ compensation, third-party casualty loss, and cargo loss and damage claims for the operations of our Asset-Based segment and certain of our other subsidiaries. We also self-insure for medical benefits for our eligible nonunion personnel. Because we self-insure for a significant portion of our claims exposure and related expenses, our insurance and claims expense may be volatile. If we lose our ability to self-insure for any significant period of time, insurance costs could materially increase, and we could experience difficulty in obtaining adequate levels of insurance coverage in that event. Our self-insurance program for third-party casualty claims is conducted under a federal program administered by a government agency. If the government were to terminate the program or if we were to be excluded from the program, our insurance costs could increase. Additionally, if our third-party insurance carriers or

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underwriters leave the trucking sector, our insurance costs or collateral requirements could materially increase, or we could experience difficulties in finding insurance in excess of our self-insured retention limits. We could also experience additional increases in our insurance premiums or deductibles in the future due to market conditions or if our claims experience worsens. If our insurance or claims expense increases, or if we decide to increase our insurance coverage in the future, and we are unable to offset any increase in expense with higher revenues, our earnings could be adversely affected. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our results of operations and financial condition.

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We have programs in place with multiple surety companies for the issuance of unsecured surety bonds in support of our self-insurance program for workers’ compensation and third-party casualty liability. Estimates made by the states and the surety companies of our future exposure for our self-insurance liabilities could influence the amount and cost of additional letters of credit and surety bonds required to support our self-insurance program, and we may be required to maintain secured surety bonds in the future, which could increase the amount of our cash equivalents and short-term investments restricted for use and unavailable for operational or capital requirements.

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Our total assets include goodwill and intangibles. If we determine that these items have become impaired in the future, our earnings could be adversely affected.

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As of December 31, 2020, we had recorded goodwill of $88.3 million and intangible assets, net of accumulated amortization, of $55.0 million. Our annual impairment evaluations for goodwill and indefinite-lived intangible assets in 2020 and 2018 produced no indication of impairment of the recorded balances. Our goodwill and intangible assets are primarily associated with acquisitions in the ArcBest segment. Our annual impairment evaluations for 2019 indicated an impairment of certain of these balances and, as a result, we recorded a noncash impairment related to goodwill and finite-lived customer relationship intangible assets of $20.0 million (pre-tax) and $6.0 million (pre-tax), respectively. (See Note D to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the impairment charge.)

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Considering the current environment, we also evaluated our goodwill and intangible assets for indicators of impairment as of December 31, 2020 and, based on our analysis, we believe the balances reported in our consolidated financial statements are appropriate as of December 31, 2020. Given the uncertainties regarding the economic environment and the future impact of the COVID-19 pandemic on our business, there can be no assurance that our estimates and assumptions made for purposes of impairment evaluations and accounting estimates will prove to be accurate. Significant declines in business levels or other changes in cash flow assumptions, including the impact of the COVID-19 pandemic, or other factors that negatively impact the fair value of the operations of our reporting units could result in impairment and noncash write-off of a significant portion of our goodwill and intangible assets, which would have an adverse effect on our financial condition and results of operations.

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Risks Related to Other External Conditions

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Our business is cyclical in nature, and we are subject to general economic factors and instability in financial and credit markets that are largely beyond our control, any of which could adversely affect our business, financial condition, and results of operations.

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Our business is cyclical in nature and tends to reflect general economic conditions, which can be impacted by government actions, including suspension of government operations and imposition of trade tariffs. Our performance is affected by recessionary economic cycles, downturns in customers’ business cycles, and changes in their business practices. Our tonnage and shipment levels are directly affected by industrial production and manufacturing, distribution, residential and commercial construction, and consumer spending, in each case primarily in the North American economy, and capacity in the trucking industry as well as our customers’ inventory levels and freight profile characteristics. We are also subject to risks related to disruption of world markets that could affect shipments between countries and could adversely affect the volume of freight and related pricing in the markets we serve. In connection with further changes to U.S. or international trade policy or other global trade impacts, the cost for goods transported globally could increase, which may lead to reduced consumer demands for such goods, or trading partners could limit trades with countries that impose anti-trade measures, which may lead to a lower volume of global economic trading activity.

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Recessionary economic conditions may result in a general decline in demand for freight transportation and logistics services. The pricing environment generally becomes more competitive during periods of slow economic growth and economic recessions, which adversely affects the profit margin for our services. Our operations and the rates we obtain for our services may also be negatively impacted when economic conditions lead to a decrease in shipping demand, which in turn results in excess tractor and trailer capacity in the industry. In certain market conditions, we may have to accept more freight from freight brokers, where freight rates are typically lower, or we may be forced to incur more non-revenue miles to obtain loads. Conversely, during times of higher shipping demand, tight equipment capacity in the industry may negatively impact the service levels we are able to provide to our customers. Demand for our roadside assistance and fleet maintenance management services may also decline in a weaker economic environment when customers of our FleetNet segment experience declines in their equipment utilization.  

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Economic conditions could adversely affect our customers’ business levels, the amount of transportation services they require, and their ability to pay for our services, which could negatively impact our working capital and our ability to satisfy our financial obligations and covenants of our financing arrangements. Because a portion of our costs are fixed, it may be difficult for us to quickly adjust our cost structure proportionately with fluctuations in volume levels. Customers encountering adverse economic conditions or facing credit issues could experience cash flow difficulties and, thus, represent a greater potential for payment delays or uncollectible accounts receivable, and, as a result, we may be required to increase our allowances for uncollectible accounts receivable. Our obligation to pay third-party service providers is not contingent upon payment from our customers, and we extend credit to certain of these customers, which increases our exposure to uncollectible receivables.

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Our business and results of operations could be impacted by seasonal fluctuations, adverse weather conditions, and natural disasters.

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Our operations are impacted by seasonal fluctuations that affect tonnage, shipment or service event levels, and demand for our services, which in turn may impact our revenues and operating results. Tonnage and shipment levels, service events, and operating costs of our segments have been, and may in the future be, adversely affected by inclement weather conditions, as further described in “Seasonality” within Part I, Item 1 (Business) of this Annual Report on Form 10-K. Severe weather events and natural disasters, such as harsh winter weather, floods, hurricanes, earthquakes, tornadoes, or lightning strikes, could disrupt our operations or the operations of our customers or third-party service providers, damage existing infrastructure, destroy our assets, affect regional economies, or disrupt fuel supplies or increase fuel costs, each of which could adversely affect our business levels and operating results. Climate change may have an influence on the severity of weather conditions, which could adversely affect our freight shipments and business levels and, consequently, our operating results.

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ITEM 1B.UNRESOLVED STAFF COMMENTS

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None.

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ITEM 2.PROPERTIES

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The Company believes that its facilities are suitable and adequate and that the facilities have sufficient capacity to meet current business requirements. The Company owns an office facility in Fort Smith, Arkansas, containing 205,000 square feet, which provides space for certain corporate and subsidiary functions. The Company leases a secondary office building in Fort Smith, Arkansas, which contains 18,000 square feet.

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Asset-Based Segment

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As of December 31, 2020, the Asset-Based segment operated out of its general office building located in Fort Smith, Arkansas, which contains 196,800 square feet, and 239 service center facilities, 10 of which also serve as distribution centers. The Company owns 109 of these Asset-Based segment facilities and leases the remainder from nonaffiliates. Asset-Based distribution centers are as follows:

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Asset-Light Operations

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The ArcBest segment owns a general office building and service bay in Medina, Ohio totaling 59,600 square feet. Additionally, the ArcBest segment leases an office and warehouse location in Sparks, Nevada totaling approximately 129,600 square feet and four other locations with approximately 61,700 square feet of office and warehouse space.

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The FleetNet segment owns its offices located in Cherryville, North Carolina containing approximately 38,900 square feet.

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ITEM 3.LEGAL PROCEEDINGS

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Various legal actions, the majority of which arise in the normal course of business, are pending. These legal actions are not expected to have a material adverse effect, individually or in the aggregate, on our financial condition, results of operations, or cash flows. We maintain liability insurance against certain risks arising out of the normal course of its business, subject to certain self-insured retention limits. We have accruals for certain legal, environmental, and self-insurance exposures. For additional information related to our environmental and legal matters, see Note O to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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ITEM 4.MINE SAFETY DISCLOSURES

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Not applicable.

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PART II

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ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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Market Information, Dividends and Holders

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The common stock of ArcBest Corporation trades on the Nasdaq Global Select Market under the symbol “ARCB.” As of February 19, 2021, there were 25,397,696 shares of the Company’s common stock outstanding, which were held by 213 stockholders of record.

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On January 28, 2021, the board of directors of the Company (the “Board of Directors”) declared a quarterly dividend of $0.08 per share to stockholders of record as of February 11, 2021. The Company expects to continue to pay quarterly dividends in the foreseeable future, although there can be no assurance in this regard since future dividends will be at the discretion of the Board of Directors and will depend upon the Company’s future earnings, capital requirements, and financial condition, contractual restrictions applying to the payment of dividends under the Company’s Third Amended and Restated Credit Agreement, and other factors.

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Issuer Purchases of Equity Securities

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The Company has a program to repurchase its common stock in the open market or in privately negotiated transactions. The program has no expiration date but may be terminated at any time at the Board of Directors’ discretion. Repurchases may be made either from the Company’s cash reserves or from other available sources. In January 2003, the Board of Directors authorized a $25.0 million common stock repurchase program and authorized an additional $50.0 million in July 2005. In October 2015, the Board of Directors extended the share repurchase program, making a total of $50.0 million available for purchases.

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As of December 31, 2020 and 2019, treasury shares totaled 3,656,938 and 3,404,639, respectively. Under the repurchase program, the Company purchased 227,460 shares during the nine months ended September 30, 2020 and purchased 24,839 shares during the three months ended December 31, 2020, leaving $6.6 million available for repurchase under the program.

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As previously announced in the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on January 28, 2021, the Board of Directors extended the share repurchase program by authorizing a total of $50.0 million to be available for purchases of the Company’s common stock, increasing the balance from the $6.6 million remaining from the extension authorized in 2015.

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ITEM 6.SELECTED FINANCIAL DATA

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The following table includes selected financial and operating data for the Company as of and for each of the five years in the period ended December 31, 2020. This information should be read in conjunction with Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 8 (Financial Statements and Supplementary Data) in Part II of this Annual Report on Form 10-K.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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ArcBest Corporation^™ (together with its subsidiaries, the “Company,” “we,” “us,” and “our”) provides a comprehensive suite of freight transportation and integrated logistics services to deliver innovative solutions. Our operations are conducted through our three reportable operating segments:

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The ArcBest and FleetNet reportable segments combined represent our Asset-Light operations. See additional segment descriptions in Part I, Item 1 (Business) and in Note M to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. References to the Company, including “we,” “us,” and “our,” in this Annual Report on Form 10-K are primarily to the Company and its subsidiaries on a consolidated basis.

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ORGANIZATION OF INFORMATION

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Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided to assist readers in understanding our financial performance during the periods presented and significant trends which may impact our future performance. This discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. MD&A includes forward-looking statements that are subject to risks and uncertainties. Actual results may differ materially from the statements made in this section due to a number of factors that are discussed in Part I (Forward-Looking Statements) and Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K. MD&A is comprised of the following:

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The Consolidated Results section of Results of Operations generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in the Consolidated Results section within Results of Operations of MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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COVID-19

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On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Efforts to control the spread of COVID-19 led governments and other authorities to impose restrictions which resulted in business closures and disrupted global supply chains. In the United States, most states placed restrictions on business operations and issued stay-at-home orders for residents beginning in late March and early April. Although many of these restrictions were eased or lifted throughout the country during May and June, COVID-19 continues to spread and business operations remain challenged. Although unemployment rates have improved since the 14.7% high reached in April 2020, recovery in the unemployment rate has slowed, and the January 2021 unemployment rate was 6.3%, versus 3.5% for the same period of 2020. On June 8, 2020, the National Bureau of Economic Research declared that a recession began in the United States in February 2020. The U.S. real gross domestic product (the “real GDP”) decreased at an annual rate of 31.4% in the second quarter of 2020. This sharp decline in real GDP represents the lowest quarter since the U.S. government began tracking this measure in 1947 and illustrates the difficulty of the economic environment during second quarter 2020. However, real GDP increased at an annual rate of 33.4% in third quarter 2020 and, according to the second estimate released by the Bureau of Economic Analysis on February 25, 2021, real GDP increased at an annual rate of 4.1% in fourth quarter 2020. We are encouraged by the record growth in real GDP in the second half of 2020 and other recent economic measures, including the Institute for Supply Management (ISM) Purchasing Managers’ Index (“PMI”) and the Industrial Production Index issued by the Federal Reserve. The Industrial Production Index, while still below 2019 levels, increased at an annual rate of 39.8% for third quarter 2020, recovering more than half of its February to April 2020 decline, and increased at an annual rate of 8.4% for fourth quarter 2020. PMI, which is a leading indicator for economic activity in the freight transportation and logistics industry, was 60.7% for December 2020, reflecting economic expansion in the manufacturing sector in December and the eighth consecutive month of growth in the overall economy, compared to 47.2% in December 2019. PMI was 58.7% for January 2021, compared to 50.9% for the same prior-year period, and is expected to expand through 2021. Manufacturing and trade inventory levels remain low and within a range we consider optimal for freight demand; although there can be no assurance that the economic environment, including the impact of the COVID-19 pandemic, will be favorable for our freight services in future periods.

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Business Impact

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The COVID-19 pandemic and the measures taken to prevent its spread began to impact our business during late March 2020. The negative impact on demand for our services accelerated as the COVID-19 pandemic continued to disrupt businesses and the economy during the second quarter of 2020. Consolidated revenues declined 1.6% in 2020, compared to 2019, primarily due to the negative impact of the COVID-19 pandemic on demand for our services during the second quarter of 2020. Significant declines in our shipment and tonnage levels during second quarter 2020 drove the full-year decreases in our Asset-Based daily tonnage levels of 0.4% and decreases in our ArcBest segment shipments per day of 4.9% in 2020, compared to 2019. Tonnage and shipment levels began to improve in third quarter 2020 and increased year-over-year in each month of fourth quarter 2020 on a per-day basis, reflecting the positive impact of an improving marketplace. Following a year-over-year decrease of 18.7% in our quarterly consolidated revenues in second quarter 2020, third quarter 2020 increased 0.9% and fourth quarter increased 13.8%, compared to the same prior-year period, respectively. The extent of the continued effect of the COVID-19 pandemic on the economy and customers’ operations and, consequently, our business results depends on future developments.

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Our consolidated net income totaled $71.1 million, or $2.69 per diluted share, in 2020, compared to $40.0 million, or $1.51 per diluted share, in 2019, which was impacted by a noncash impairment charge of $19.8 million (after-tax), or $0.75 per diluted share, recognized in the fourth quarter of 2019 related to a portion of the goodwill, customer relationship intangible assets, and revenue equipment associated with the acquisition of truckload and dedicated businesses within the ArcBest segment. Year-over-year improvement in our net income and earnings per share was achieved during this challenging business environment because of the dedication of our employees and prudent business decisions to manage resources and costs to business levels.

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Quarter-to-date 2021 Business Update

The revenue improvements we experienced in fourth quarter 2020 continued quarter-to-date through late-February 2021. Compared to the same prior-year period, Asset-Based billed revenue increased approximately 7% on a per-day basis, primarily due to yield improvement, and revenue per day for our ArcBest segment (ArcBest Asset-Light operations, excluding FleetNet) increased approximately 50%, primarily due to higher shipment levels and an increase in revenue per shipment. Our quarter-to-date 2021 results are further discussed in the business updates within the Asset-Based Segment Results and Asset-Light Results sections.

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Business Response

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Business Continuity & Our Employees and Customers

We are continuing the business continuity processes we implemented in March 2020 which focused on maintaining customer service levels while emphasizing the health, welfare, and safety of our employees and our customers. The measures we implemented to safeguard our employees and customers, which are in alignment with guidelines established by the Centers for Disease Control and Prevention, include employee communication on COVID-19 symptom awareness, proper hand washing, social distancing, mask wearing, and glove removal; increased cleaning and disinfecting measures; temperature screenings; providing masks and gloves to employees; reduced nonessential travel and in-person meetings, including meetings with customers; remote work arrangements for many personnel; installation of glass dividers between workstations; health screening questionnaires for personnel working onsite; health screening procedures for critical customer visitors; and promotion of social distancing to every extent possible, including between employees and with customers.

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Financial Stability

As previously announced, in anticipation of lower business levels and the potential for cash flow disruption, we took actions in late March and early April 2020 to preserve cash and lower costs to mitigate the operating and financial impact of the COVID-19 pandemic.

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On March 26, 2020, we drew down the $180.0 million remaining available borrowing capacity under the initial maximum credit amount of our revolving credit facility and borrowed $45.0 million under our accounts receivable securitization program. These borrowings were a proactive measure to supplement our already strong cash and short-term investments position and preserve financial flexibility in consideration of general economic and financial market uncertainty resulting from the COVID-19 outbreak. Due to improvement in our consolidated net cash position, stabilized customer account payment trends, and improved business levels, we repaid these borrowings during third quarter 2020. Additionally, we repaid the remaining outstanding balance of $40.0 million under our accounts receivable securitization program in third quarter 2020. Our consolidated cash, cash equivalents, and short-term investments totaled $369.4 million at December 31, 2020. These amounts, net of debt, increased to a $85.1 million net cash position at December 31, 2020, compared to a $5.0 million net debt position at December 31, 2019, primarily reflecting positive earnings.

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We lowered our planned capital expenditures for 2020 by approximately 30%, including a reduction in revenue equipment purchases of $18.0 million. Total net capital expenditures, including equipment financed, for 2020 was $91.7 million, including $63.1 million of revenue equipment. For 2021, our total net capital expenditures, including amounts financed, are estimated to range from $150.0 million to $160.0 million, including revenue equipment of $100.0 million, primarily for our Asset-Based operations.

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In April 2020, we implemented cost reduction actions which included a 15% reduction in the salaries of officers and nonunion employees and similar compensation adjustments for hourly nonunion employees; a 15% reduction in fees paid to members and committee chairpersons of our Board of Directors; implementation of a hiring freeze; suspension of the employer match on our nonunion 401(k) plan; and reduction of advertising, training, travel, and other costs to better align with current business levels. The compensation reductions lowered consolidated operating expenses by approximately $15 million in second quarter 2020, versus second quarter 2019. As a result of the positive sequential trends in our business levels through July 2020, we reversed the compensation cost reductions beginning in the third quarter of 2020, including officer and nonunion employee salaries, the employer match on our nonunion 401(k) plan, and fees for our Board of Directors. We provided one-time discretionary payments in fourth quarter 2020 to nonunion exempt personnel for the previously discussed 15% wage reduction incurred during the second quarter of 2020 and provided a bonus to nonunion hourly employees whose hours were reduced during the same time period. The expense related to these payments totaled approximately $11 million.

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Throughout the second and third quarters of 2020, we utilized real-time, technology-enabled data to make operational changes in our Asset-Based network, including workforce reductions to better align resources with business levels. We are continually evaluating these operational changes and adjusting to current and anticipated business levels. These operational changes contributed to our positive financial results for 2020. As tonnage levels have increased, certain operational resources have been added back to the Asset-Based network, and they will continue to be carefully managed to business levels. Expenses for which we made cost reductions in 2020, including advertising, training, and travel, as well as customer and personnel related events which were suspended during the year, are expected to return. We also expect

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our nonunion healthcare costs to increase from 2020 expense levels, which were lower than the prior year due to a reduction in average costs per claim, reflecting the effect of the COVID-19 pandemic on the timing and availability of medical care. Our efforts to manage our operational costs may not directly correspond to significant changes in business levels and there can be no assurance that the impact of the COVID-19 pandemic will not have an adverse effect on our operating results in future periods.

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Accounting Estimates

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In accordance with U.S. generally accepted accounting principles (“GAAP”), we use projected financial information to determine certain accounting estimates and the values of certain assets included in our consolidated financial statements. As of December 31, 2020, we evaluated our goodwill, intangible assets, operating assets, and deferred tax assets for indicators of impairment and challenged our accounting estimates considering the current economic conditions. Certain of these assessments are discussed in the paragraphs below. Given the uncertainties regarding the economic environment and the future impact of the COVID-19 pandemic on our business, there can be no assurance that our estimates and assumptions made for purposes of impairment evaluations and accounting estimates will prove to be accurate.

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Goodwill and Intangible Asset Impairment Consideration

As further described in the Critical Accounting Policies section of MD&A, we performed our annual impairment evaluation of goodwill and indefinite-lived intangible assets as of October 1, 2020, and determined that there were no impairments of the recorded balances. While future impacts of COVID-19 and the economic environment are difficult to forecast, we expect to generate future cash flows which would continue to support the fair value in excess of carrying value for our reporting units and indefinite-life intangible assets.

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As of December 31, 2020, we believe the values of the goodwill and intangible assets reported in our consolidated financial statements, which totaled $143.3 million, continue to be appropriate; however, we will continually monitor performance measures and events for any significant changes in impairment indicators. Significant declines in business levels or other changes in cash flow assumptions, including the impact of the COVID-19 pandemic, or other factors that negatively impact the fair value of the operations of our reporting units could result in future impairment and a resulting noncash write-off of a significant portion of the goodwill and indefinite-lived intangible assets of our ArcBest segment, which would have an adverse effect on our financial condition and operating results.

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Allowances on Accounts Receivable

As further described in the Critical Accounting Policies section of MD&A, we estimate our allowance for credit losses on accounts receivable based on historical trends, factors surrounding the credit risk of specific customers, and forecasts of future economic conditions. We continually update the data we use to ensure that these estimates reflect the most recent trends, factors, forecasts, and other information available; however, actual write-offs or adjustments could differ from our allowance estimates due to a number of factors, including changes in the overall economic environment or factors and risks surrounding a particular customer, both of which had a higher degree of uncertainty during 2020 due to the impact of the COVID-19 pandemic.

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RESULTS OF OPERATIONS

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Consolidated Results

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Our consolidated revenues, which totaled $2.9 billion for 2020, decreased 1.6% compared to 2019, primarily due to lower Asset-Based tonnage and ArcBest segment shipment levels resulting from the negative impact of the COVID-19 pandemic on demand for our services during the second quarter of 2020. The impact of the significant decline in second quarter tonnage and shipment levels to our 2020 revenues was partially offset by improved business levels during the second half of the year, primarily in the fourth quarter as customer shipping patterns recovered and we experienced increased demand for our logistics solutions. The year-over-year decrease in consolidated revenues for 2020 reflects a 2.5% decrease in our Asset-Based revenues, partially offset by a 3.6% increase in revenues of our Asset-Light operations (representing the combined operations of our ArcBest and FleetNet segments). The higher elimination of revenues reported in the “Other and eliminations” line of consolidated revenues in 2020, compared to 2019, includes the impact of increased intersegment business levels among our operating segments, reflecting continued integration of our logistics services.

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On a per-day basis, Asset-Based revenues decreased 3.0% in 2020, compared to 2019, reflecting a 2.4% decline in billed revenue per hundredweight, including fuel surcharges, and a 0.4% decrease in tonnage per day. The decline in our Asset-Based tonnage per day for 2020, compared to 2019, reflects a decrease in shipment levels, partially offset by a higher weight per shipment. The number of workdays was greater by one and one-half days in 2020, versus 2019. The increase in revenues of our Asset-Light operations for 2020, compared to 2019, was primarily due to an increase in revenue per shipment associated with higher market pricing in a tighter truckload capacity environment, partially offset by a decline in shipments per day (excluding managed transportation shipments). The Asset-Light revenue increase in the ArcBest segment was partially offset by decline in revenue for the FleetNet segment on lower service event volume. Our Asset-Light operations, on a combined basis, generated 32% and 31% of total revenues before other revenues and intercompany eliminations for 2020 and 2019, respectively.

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Consolidated operating income increased $34.5 million in 2020 compared to 2019. The year-over-year changes in consolidated operating income, net income, and per share amounts for 2020 and 2019 reflect the operating results of our operating segments and the items described below which are meaningful to the analysis of our consolidated operating results.

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Operating results for 2019 were impacted by a noncash impairment charge of $26.5 million (pre-tax), or $19.8 million (after-tax) and $0.75 per diluted share, recognized in the fourth quarter of 2019 related to a portion of the goodwill, customer relationship intangible assets, and revenue equipment associated with the acquisition of truckload and dedicated businesses within the ArcBest segment, as further discussed in the Asset-Light Results section.

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Innovative technology costs related to a freight handling pilot test program at ABF Freight impacted consolidated results by $22.6 million (pre-tax), or $17.3 million (after-tax) and $0.66 per diluted share, for 2020, compared to $15.7 million (pre-tax), or $12.0 million (after-tax) and $0.45 per diluted share, for 2019. In 2019, the Asset-Based segment also incurred conversion costs to comply with the electronic logging device (“ELD”) mandate of $2.7 million (pre-tax), or $2.0 million (after-tax) and $0.08 per diluted share, with no comparable costs recognized during 2020. These matters are further discussed in the Asset-Based Segment Results section.

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The year-over-year pre-tax comparisons of consolidated operating results were impacted by costs for certain nonunion performance-based incentive plans, including long-term incentive plans impacted by shareholder returns relative to peers, which increased $17.5 million in 2020, compared to 2019. The increase in these fringe benefit costs were partially offset by lower nonunion healthcare costs, which decreased $5.5 million in 2020, compared to 2019, due to a reduction in average costs per claim, reflecting the effect of the COVID-19 pandemic on the timing and availability of medical care.

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The loss reported in the “Other and eliminations” line of consolidated operating income, which totaled $13.6 million for 2020, compared to $22.9 million for 2019, includes expenses related to investments to develop and design various technology and innovations, as well as expenses related to shared services for the delivery of comprehensive transportation and logistics services to our customers. The $9.3 million decrease in the loss reported in “Other and eliminations” for 2020, compared to 2019, reflects lower technology costs and reduced travel, marketing, and customer event operating expenses primarily due to the COVID-19 pandemic. We expect the loss reported in “Other and eliminations” for first quarter and full-year 2021 to approximate $6 million and $24 million, respectively, which would be more consistent with 2019 levels.

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In addition to the above items, consolidated net income and earnings per share were impacted by income from changes in the cash surrender value of variable life insurance policies, which is reported below the operating income line in the consolidated statements of operations. A portion of our variable life insurance policies have investments, through separate accounts, in equity and fixed income securities and, therefore, are subject to market volatility. Changes in the cash surrender value of life insurance policies contributed $2.3 million to consolidated net income and $0.09 to diluted earnings per share in 2020, versus $3.7 million and $0.14 per diluted share in 2019.

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Consolidated after-tax pension expense, including settlement and termination expense, recognized for the nonunion defined benefit pension plan totaled $8.0 million, or $0.30 per diluted share, for 2019, with no comparable expense for 2020 as termination of the plan was completed as of December 31, 2019. These pension expenses for 2019 and termination of the nonunion defined benefit pension plan are detailed in Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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Consolidated net income and earnings per share were impacted by $2.1 million, or $0.08 per diluted share, in 2020 and $1.4 million, or $0.05 per diluted share, in 2019 for a research and development tax credit. Consolidated net income and earnings per share for 2019 were also impacted by $2.3 million, or $0.09 per diluted share, for an alternative fuel tax credit related to the years ended December 31, 2019 and 2018, which was recognized upon the December 2019 retroactive reinstatement of the alternative fuel tax credit. The tax benefits and credits, as well as other changes in the effective tax rates, which impacted the year-over-year comparisons of consolidated net income and earnings per share for 2020 and 2019 are further described within the Income Taxes section of MD&A and in Note E to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

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Consolidated Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)

We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP performance measures and ratios, such as Adjusted EBITDA, utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. Accordingly, using these measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Management uses Adjusted EBITDA as a key measure of performance and for business planning. The measure is particularly meaningful for analysis of our operating performance, because it excludes amortization of acquired intangibles and software of the Asset-Light businesses, which are significant expenses resulting from strategic decisions rather than core daily operations. Additionally, Adjusted EBITDA is a primary component of the financial covenants contained in our Third Amended and Restated Credit Agreement (see Note G to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K). Other companies may calculate Adjusted EBITDA differently; therefore, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. Adjusted EBITDA should not be construed as a better measurement than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.

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Asset-Based Operations

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Asset-Based Segment Overview

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The Asset-Based segment consists of ABF Freight System, Inc., a wholly-owned subsidiary of ArcBest Corporation, and certain other subsidiaries. Our Asset-Based segment operates a less-than-truckload (“LTL”) network across North America to provide freight transportation services. Our customers trust the LTL solutions ABF Freight has provided for nearly a century and rely on us to solve their transportation challenges. We are strategically investing in our Asset-Based operations to utilize technology to improve freight handling processes and provide better experiences for our customers.

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See Note M to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a description of the Asset-Based segment and additional segment information, including revenues, operating expenses, and operating income for the years ended December 31, 2020, 2019, and 2018. This Asset-Based Operations section of Results of Operations generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in the Asset-Based Operations section within Results of Operations of MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Our Asset-Based operations are affected by general economic conditions, as well as a number of other factors that are more fully described in Item 1 (Business) and in Item 1A (Risk Factors) of Part I of this Annual Report on Form 10-K.

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The key indicators necessary to understand the operating results of our Asset-Based segment are outlined below. These key indicators are used by management to evaluate segment operating performance and measure the effectiveness of strategic initiatives in the results of our Asset-Based segment. We quantify certain key indicators using key operating statistics which are important measures in analyzing segment operating results from period to period. These statistics are defined within the key indicators below and referred to throughout the discussion of results of our Asset-Based segment:

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Pounds or Tonnage – total weight of shipments processed during the period in U.S. pounds or U.S. tons.

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Pounds per day or Tonnage per day (average daily shipment weight) – pounds or tonnage divided by the number of workdays in the period.

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Shipments per day – total number of shipments moving through the Asset-Based freight network during the period divided by the number of workdays in the period.

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Pounds per shipment (weight per shipment) – total pounds divided by the number of shipments during the period.

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Average length of haul (miles) – total miles driven divided by the total number of shipments during the period.

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Billed revenue per hundredweight, including fuel surcharges (yield) – revenue per every 100 pounds of shipment weight, including surcharges related to fuel, systematically calculated as shipments are processed in the Asset-Based freight network. Revenue for undelivered freight is deferred for financial statement purposes in accordance with our revenue recognition policy. Billed revenue used for calculating revenue per hundredweight measurements is not adjusted for the portion of revenue deferred for financial statement purposes.

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Operating ratio – the percent of operating expenses to revenue levels.

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We also quantify certain key operating statistics which are used by management to evaluate productivity of operations within the Asset-Based freight network and to measure the effectiveness of strategic initiatives to manage the segment’s cost structure from period to period. These measures are defined below and further discussed in the Asset-Based Operating Expenses section within Asset-Based Segment Results:

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Other companies within our industry may present different key performance indicators or operating statistics, or they may calculate their measures differently; therefore, our key performance indicators or operating statistics may not be comparable to similarly titled measures of other companies. Key performance indicators or operating statistics should be viewed in addition to, and not as an alternative for, our reported results. Our key performance indicators or operating statistics should not be construed as better measurements of our results than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.

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As of December 2020, approximately 82% of the Asset-Based segment’s employees were covered under the ABF National Master Freight Agreement (the “2018 ABF NMFA”), the collective bargaining agreement with the International Brotherhood of Teamsters (the “IBT”), which was implemented on July 29, 2018, effective retroactive to April 1, 2018, and will remain in effect through June 30, 2023. Under the 2018 ABF NMFA, the contractual wage and benefits costs, including the ratification bonuses and vacation restoration, are estimated to increase approximately 2.0% on a compounded annual basis through the end of the agreement. Profit-sharing bonuses based on the Asset-Based segment’s annual GAAP operating ratios for any full calendar year under the contract represent an additional increase in costs under the 2018 ABF NMFA. A profit-sharing bonus was earned by contractual employees under the 2018 ABF NMFA, which totaled $5.0 million and $5.1 million for the year ended December 31, 2020 and 2019, respectively, upon the Asset-Based segment achieving an annual GAAP operating ratio of 95.3% in 2020 and 95.2% in 2019.

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The major economic provisions of the 2018 ABF NMFA include:

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Tonnage

The level of freight tonnage managed by the Asset-Based segment is directly affected by industrial production and manufacturing, distribution, residential and commercial construction, consumer spending, primarily in the North American economy, and capacity in the trucking industry. Operating results are affected by economic cycles, customers’ business cycles, and changes in customers’ business practices. The Asset-Based segment actively competes for freight business based primarily on price, service, and availability of flexible shipping options to customers. ArcBest seeks to offer value through identifying specific customer needs, then providing operational flexibility and seamless access to the services of our Asset-Based segment and our Asset-Light operations in order to respond with customized solutions.

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Pricing

The industry pricing environment, another key factor impacting our Asset-Based results, influences the ability to obtain appropriate margins and price increases on customer accounts. Generally, freight is rated by a class system, which is established by the National Motor Freight Traffic Association, Inc. Light, bulky freight typically has a higher class and is priced at a higher revenue per hundredweight than dense, heavy freight. Changes in the rated class and packaging of the freight, along with changes in other freight profile factors such as average shipment size, average length of haul, freight density, and customer and geographic mix, can affect the average billed revenue per hundredweight measure.

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Approximately one fourth of our Asset-Based business is subject to base LTL tariffs, which are affected by general rate increases, combined with individually negotiated discounts. Rates on the other three fourths of our Asset-Based business, including business priced in the spot market, are subject to individual pricing arrangements that are negotiated at various times throughout the year. The majority of the business that is subject to negotiated pricing arrangements is associated with larger customer accounts with annually negotiated pricing arrangements, and the remaining business is priced on an individual shipment basis considering each shipment’s unique profile, value provided to the customer, and current market conditions. Since pricing is established individually by account, the Asset-Based segment focuses on individual account profitability rather than a single measure of billed revenue per hundredweight when considering customer account or market evaluations. This is due to the difficulty of quantifying, with sufficient accuracy, the impact of changes in freight profile characteristics, which is necessary in estimating true price changes.

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In December 2019, we began allowing shippers without negotiated published rates to instantly access competitive LTL rates for their shipping needs with capacity available in the ABF Freight network at the time of the shipment. The market has been receptive to the pricing option for transactional LTL shipments and this program has been beneficial in optimizing our business levels during 2020 by improving capacity utilization in the Asset-Based network.

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We use a space-based pricing approach for shipments subject to LTL tariffs to align our pricing with freight profile trends in the industry, including bulkier shipments across the supply chain, the acceleration in e-commerce, and the unique requirements of many shipping and logistics solutions. Space-based pricing involves the use of freight dimensions (length, width, and height) to determine applicable cubic minimum charges (“CMC”) that supplement weight-based metrics when appropriate. Traditional LTL pricing is generally weight-based, while our linehaul costs are generally space-based (i.e., costs are impacted by the volume of space required for each shipment). We believe space-based pricing better aligns our pricing mechanisms with the metrics which affect our resources and, therefore, our costs to provide logistics services. We seek to provide logistics solutions to our customers’ businesses and the unique shipment characteristics of their various products and commodities, and we believe that we are particularly experienced in handling complicated freight. The CMC is an additional pricing mechanism to better capture the value we provide in transporting these shipments.

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Fuel

The transportation industry is dependent upon the availability of adequate fuel supplies. The Asset-Based segment assesses a fuel surcharge based on the index of national on-highway average diesel fuel prices published weekly by the U.S. Department of Energy. To better align fuel surcharges to fuel- and energy-related expenses and provide more stability to account profitability as fuel prices change, we may, from time to time, revise our standard fuel surcharge program which impacts approximately one third of Asset-Based shipments and primarily affects noncontractual customers. While fuel surcharge revenue generally more than offsets the increase in direct diesel fuel costs when applied, the total impact of energy prices on other nonfuel-related expenses is difficult to ascertain. Management cannot predict, with reasonable certainty, future fuel price fluctuations, the impact of energy prices on other cost elements, recoverability of fuel costs through fuel surcharges, and the effect of fuel surcharges on the overall rate structure or the total price that the segment will receive from its customers. While the fuel surcharge is one of several components in the overall rate structure, the actual rate paid by customers is governed by market forces and the overall value of services provided to the customer.

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During periods of changing diesel fuel prices, the fuel surcharge and associated direct diesel fuel costs also vary by different degrees. Depending upon the rates of these changes and the impact on costs in other fuel- and energy-related areas, operating margins could be impacted. Fuel prices have fluctuated significantly in recent years. Whether fuel prices fluctuate or remain constant, operating results may be adversely affected if competitive pressures limit our ability to recover fuel surcharges. Throughout 2020, the fuel surcharge mechanism generally continued to have market acceptance among customers; however, certain nonstandard pricing arrangements have limited the amount of fuel surcharge recovered. The negative impact on operating margins of capped fuel surcharge revenue during periods of increasing fuel costs is more evident when fuel prices remain above the maximum levels recovered through the fuel surcharge mechanism on certain accounts. In periods of declining fuel prices, fuel surcharge percentages also decrease, which negatively impacts

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the total billed revenue per hundredweight measure and, consequently, revenues, and the revenue decline may be disproportionate to our fuel costs. Asset-Based revenues for 2020 compared to 2019 were negatively impacted by lower fuel surcharge revenue due to a decline in the nominal fuel surcharge rate, while total fuel costs were also lower. The segment’s operating results will continue to be impacted by further changes in fuel prices and the related fuel surcharges.

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Labor Costs

Our Asset-Based labor costs, including retirement and healthcare benefits for contractual employees that are provided by a number of multiemployer plans (see Note I to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K), are impacted by contractual obligations under the 2018 ABF NMFA and other related supplemental agreements. Total salaries, wages, and benefits, amounted to 52.4% and 53.6% of revenues for 2020 and 2019, respectively. Changes in salaries, wages, and benefits expense as a percentage of revenues are discussed in the following Asset-Based Segment Results section.

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ABF Freight operates in a highly competitive industry which consists predominantly of nonunion motor carriers. Nonunion competitors have a lower fringe benefit cost structure and less stringent labor work rules, and certain carriers also have lower wage rates for their freight-handling and driving personnel. Wage and benefit concessions granted to certain union competitors also allow for a lower cost structure. ABF Freight has continued to address with the IBT the effect of the segment’s wage and benefit cost structure on its operating results. Lower cost increases throughout the 2018 ABF NMFA contract period and increased flexibility in labor work rules are important factors in bringing ABF Freight’s labor cost structure closer in line with that of its competitors. However, under its current labor agreement, ABF Freight continues to pay some of the highest benefit contribution rates in the industry. The terms of the 2018 ABF NMFA are expected to allow the Asset-Based segment to maintain low-cost inflation in the current tight labor market while providing some of the best wages and benefits in the industry to our employees.

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On February 11, 2020, the Ways and Means Committee approved the Butch Lewis Emergency Pension Plan Relief Act of 2021 (the “Pension Relief Act”) included as Subtitle H of the Concurrent Resolution on the Budget for Fiscal Year 2021. The legislative package will be sent to the House of Representatives and then to the Senate for approval. The Pension Relief Act includes various provisions to improve funding for multiemployer pension plans, including financial assistance provided through the PBGC to qualifying underfunded plans to secure pension benefits for plan participants. Stabilization of the multiemployer pension plans under the Pension Relief Act would protect the pension benefits of our contractual employees and further enhance our total union employee pay and benefit package. Without the funding to be provided by the Pension Relief Act, many of the multiemployer pension funds to which we contribute could become insolvent in the near future; however, we would continue to be obligated to make contributions to those funds under the terms of the 2018 ABF NMFA. While we cannot determine the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees, we believe our future contribution rates to multiemployer pension plans may be less likely to increase as a result of the provisions of the Pension Relief Act. There can be no assurances that the Pension Relief Act will be signed into law, either in its current form or in any other form.

ABF Freight’s benefit contributions for its contractual employees include contributions to multiemployer plans, a portion of which are used to fund benefits for individuals who were never employed by ABF Freight. ABF Freight’s multiemployer pension contributions totaled $142.2 million and $153.7 million for 2020 and 2019, respectively. Information provided by a large multiemployer pension plan to which ABF Freight contributes indicates that approximately 50% of the plan’s benefit payments are made to retirees of companies that are no longer contributing employers to that plan. As previously outlined, the 2018 ABF NMFA provides for ABF Freight’s contributions to multiemployer pension plans to remain at the rates that were paid under the prior labor agreement with the IBT, while wage rates and health and welfare contribution rates for most plans will increase annually in accordance with the terms of the 2018 ABF NMFA. The contractual wage rate increased 1.6% and 1.4% effective July 1, 2020 and 2019, respectively. The average health, welfare, and pension benefit contribution rate increased approximately 2.2% and 2.0% effective primarily on August 1, 2020 and 2019, respectively.

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Asset-Based Segment Results

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The following table sets forth a summary of operating expenses and operating income as a percentage of revenue for the Asset-Based segment:

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The following table provides a comparison of key operating statistics for the Asset-Based segment, as previously defined in the Asset-Based Segment Overview:

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Asset-Based Revenues

Asset-Based segment revenues totaled $2,092.0 million and $2,144.7 million for the year ended December 31, 2020 and 2019, respectively. The number of workdays was greater by one and one-half days in 2020, versus the prior year. Billed revenue (as described in the Asset-Based Segment Overview) decreased 2.7% on a per-day basis in 2020 compared to 2019, primarily reflecting a 2.4% decrease in total billed revenue per hundredweight, including fuel surcharges, and a 0.4% decrease in tonnage per day. Asset-Based revenues for 2020 were negatively impacted by reduced demand for the segment’s services in the second quarter of the year as a result of the COVID-19 pandemic.

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The 2.4% decrease in total billed revenue per hundredweight for 2020, compared to 2019, was due to lower fuel surcharge revenues and changes in freight mix and shipment profile, reflecting heavier-weighted transactional shipments and the

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impact of the COVID-19 pandemic on the freight environment. The Asset-Based segment’s average nominal fuel surcharge rate for 2020 decreased approximately 290 basis points from 2019 levels. Excluding the impact of transactional shipments and fuel surcharges, the percentage increase in billed revenue per hundredweight on our traditional LTL-rated freight was in the mid-single digits for 2020, compared to 2019. Prices on accounts subject to deferred pricing agreements and annually negotiated contracts that were renewed during 2020 increased an average of 3.5%, compared to the prior year. The Asset-Based segment implemented nominal general rate increases on its LTL base rate tariffs of 5.9% effective on both February 24, 2020 and February 4, 2019, although the rate changes vary by lane and shipment characteristics.

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The 0.4% decrease in tonnage per day for 2020, compared to 2019, reflects a decrease in shipments per day of 4.1%, partially offset by a 3.9% increase in weight per shipment. The shipment decline in 2020 was impacted by the COVID-19 pandemic which disrupted customers’ shipping patterns beginning in late-March 2020 and reduced demand throughout second quarter 2020, before returning to more comparative year-over-year levels in third quarter 2020 and further improving in fourth quarter 2020. Lower shipment levels for 2020 primarily reflect a decline in traditional, published LTL-rated shipments. These decreases were partially offset by the positive impacts of technology-driven initiatives implemented in the latter part of 2019 designed to fill available Asset-Based equipment capacity with transactional LTL-rated shipments. These larger-sized LTL-rated shipments contributed to a 5.4% increase in LTL-rated weight per shipment for 2020, compared to 2019.

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Asset-Based Operating Income

The Asset-Based segment generated operating income of $98.9 million in 2020, compared to $102.1 million in 2019, with an operating ratio of 95.3% and 95.2%, respectively. The 0.1 percentage point increase in the Asset-Based segment’s operating ratio for 2020, compared to 2019, primarily reflects the decrease in revenues, partially offset by the operational changes in the Asset-Based network implemented in April 2020, as previously discussed in our Business Response within the COVID-19 section of MD&A, and the positive impact of freight mix changes related to an increase in transactional LTL-rated shipments, which positively impacted capacity utilization in the Asset-Based network.

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ArcBest Technologies, Inc., our wholly-owned subsidiary which is focused on the advancement of supply chain execution technologies, began a pilot test program (the “pilot”) in early 2019 to improve freight handling at ABF Freight. The pilot is in the early stages in a limited number of locations. While ArcBest believes the pilot has potential to provide safer and improved freight-handling, a number of factors will be involved in determining proof of concept and there can be no assurances that pilot testing will be successful or expand beyond current testing locations. Innovative technology costs related to the pilot impacted operating results of the Asset-Based segment by $22.5 million and $13.7 million for 2020 and 2019, respectively. We anticipate innovative technology costs associated with the pilot to impact our Asset-Based operating expenses by approximately $6.0 million in first quarter 2021, compared to $4.5 million in first quarter 2020.

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The segment’s operating ratio was also impacted by changes in operating expenses as discussed in the following paragraphs.

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Asset-Based Operating Expenses

Labor costs, which are reported in operating expenses as salaries, wages, and benefits, amounted to 52.4% and 53.6% of Asset-Based segment revenues for 2020 and 2019, respectively. The improvements in salaries, wages, and benefits as a percentage of revenue were partially offset by the effect of lower revenues, as a portion of operating costs are fixed in nature and increase as a percent of revenue with decreases in revenue levels. Salaries, wages, and benefits decreased $53.1 million for 2020, compared to 2019. The lower labor costs primarily reflect wage and workforce reductions in response to the negative impact of COVID-19 on business levels and the impact of managing labor hours to lower shipment levels. Labor costs also benefited from operational changes in our Asset-Based network (previously discussed in our Business Response within the COVID-19 section of MD&A). These decreases in labor costs were partially offset by the year-over-year increases in contractual wage and benefit contribution rates under the 2018 ABF NMFA, as previously discussed in the Labor Costs section of the Asset-Based Segment Overview, and higher expenses for certain nonunion performance-based incentive plans, including long-term incentive plans impacted by shareholder returns relative to peers.

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Although the Asset-Based segment manages costs with shipment levels, portions of salaries, wages, and benefits are fixed in nature and the adjustments which would otherwise be necessary to align the labor cost structure throughout the system to corresponding tonnage levels are limited as the segment strives to maintain customer service. Shipments per DSY hour improved 3.7% and pounds per mile increased 1.9% for 2020, compared to 2019, reflecting efforts to manage costs with shipment levels and the application of data-enabled technologies. A higher number of heavier transactional LTL-rated shipments during 2020 contributed to improved operational metrics in the Asset-Based network, compared to 2019, as these transactional shipments typically require less handling and utilize available trailer space that would otherwise be moving empty. Productivity measures also benefited from the effect of customers expanding appointment windows and the effect of less congested roadways as a result of restrictions on business operations and stay-at-home orders for residents in many states particularly during the second quarter of 2020.

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Fuel, supplies, and expenses as a percentage of revenue decreased 2.0 percentage points in 2020, compared to 2019, primarily due to lower fuel costs as the Asset-Based segment’s average fuel price per gallon (excluding taxes) decreased approximately 32% during 2020, compared to 2019. Fewer miles driven as a result of the decline in business levels in second quarter 2020 and higher utilization of purchased transportation during the second half of 2020, as further described below, also contributed to the year-over-year decreases in fuel, supplies, and expenses.

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Depreciation and amortization expense as a percentage of revenue increased 0.3 percentage points in 2020, compared to 2019, primarily due to higher costs of new revenue equipment purchases and additional per unit costs related to electronic logging device (“ELD”) and other safety equipment enhancements. The year-over-year comparison of depreciation and amortization expense was impacted by impairment charges recognized in 2019 related to equipment replacement and other one-time costs totaling $2.7 million to comply with the ELD mandate which became effective in December 2019. The increase in depreciation and amortization as a percentage of revenue in 2020, compared to 2019, was also influenced by the effect of lower revenues, as a portion of these costs are fixed in nature and increase as a percent of revenue with decreases in business levels.  

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Rents and purchased transportation as a percentage of revenue increased 1.7 percentage points in 2020, compared to 2019, primarily due to increases in the utilization of rail, local delivery agents, and linehaul purchased transportation necessary to serve our customers’ needs as freight demand increased inconsistently across the Asset-Based system during the second half of 2020. Rail miles increased approximately 21% in 2020, compared to 2019.

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Shared services as a percentage of revenue increased 0.5 percentage points in 2020, compared to 2019, primarily due to higher expense accruals for certain performance-based incentive plans, including long-term incentive plans impacted by shareholder returns relative to peers. The increase in shared services as a percentage of revenue was influenced by the effect of lower revenues, as shared service cost allocations were impacted by lower business levels during 2020, primarily due to the negative impact of the COVID-19 pandemic on demand for freight transportation services during the second quarter of 2020.

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Innovative technology costs as a percentage of revenue increased 0.5 percentage points for 2020, compared to 2019, primarily due to increased activity for the previously discussed freight handling pilot test program at ABF Freight.

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Asset-Based Segment – First Quarter-to-date 2021

As an update to preliminary figures reported in our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 2, 2021, January 2021 billed revenue per day increased 10.7% and tonnage per day increased 6.6%, compared to January 2020. Asset-Based billed revenues quarter-to-date through late-February 2021 increased approximately 7% above the same period of 2020 on a per-day basis, primarily reflecting an increase in total billed revenue per hundredweight, including fuel surcharges, of approximately 7% and flat tonnage levels. Although revenue per day was above the prior year quarter-to-date, severe winter weather in February 2021, relative to the same period last year, reduced tonnage and revenue totals compared to January trends and resulted in some additional costs. The increase in total billed revenue per hundredweight reflects a rational pricing environment, lower fuel surcharges, and freight mix changes, compared to the prior-year period. Asset-Based revenues quarter-to-date through late-February 2021, compared to the same period of 2020, were negatively impacted by lower fuel surcharge revenue due to an approximate 150 basis point decline in the nominal fuel surcharge rate, while total fuel costs were also lower.

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The Asset-Based segment implemented nominal general rate increases on its LTL-rated base rate tariffs of 5.95% effective January 25, 2021, although the rate changes vary by lane and shipment characteristics. The general rate increase affects approximately one fourth of our Asset-Based business. In January 2021, the Asset-Based segment sold an unutilized

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property that will result in a gain of approximately $8.5 million for first quarter 2021, compared to a gain on the sale of property and equipment of $2.2 million in first quarter 2020. The first quarter of 2021 will have 63 working days compared to 64 days in first quarter 2020.

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Tonnage levels are historically seasonally lower during January and February while March provides a disproportionately higher amount of the first quarter’s business. The first quarter of each year generally has the highest operating ratio of the year, although other factors, including the state of the economy, may influence quarterly comparisons. Current economic conditions and the Asset-Based segment’s pricing approach, as previously discussed in the Pricing section of the Asset-Based Segment Overview within Results of Operations, will continue to impact the segment’s tonnage levels and the prices it receives for its services and, as such, there can be no assurance that our Asset-Based segment will maintain or achieve improvements in its current operating results. Our efforts to manage operational costs in the Asset-Based network may not directly correspond to significant changes in business levels and there can be no assurance that the impact of the COVID-19 pandemic will not have an adverse effect on our operating results in future periods. The marketplace pricing environment has been positive and rational in support of our efforts to secure needed price increases; however, the competitive environment could limit the Asset-Based segment from securing adequate increases in base LTL freight rates and could limit the amount of fuel surcharge revenue recovered in future periods.

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Asset-Light Operations

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Asset-Light Overview

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The ArcBest and FleetNet reportable segments, combined, represent our Asset-Light operations. Our Asset-Light operations are a key component of our strategy to offer customers a single source of integrated logistics solutions, designed to satisfy the complex supply chain and unique shipping requirements customers encounter. We are focused on growing and making strategic investments in the development of our Asset-Light operations that enhance the efficient delivery of our services. Throughout our operations, we are seeking opportunities to expand our revenues by deepening customer relationships and securing new customers. In recent years, we have experienced significant growth in shipment levels and revenues of managed transportation solutions due, in part, to our strategic efforts to cross-sell our service offerings. We expect to benefit from these and other strategic initiatives as we continue to deliver innovative solutions to customers.

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See Note M to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for descriptions of the ArcBest and FleetNet segments and additional segment information, including revenues, operating expenses, and operating income for the years ended December 31, 2020, 2019, and 2018. This Asset-Light Operations section of Results of Operations generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in the Asset-Light Operations section within Results of Operations of MD&A in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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Our Asset-Light operations are affected by general economic conditions, as well as several other competitive factors that are more fully described in Part I, Item 1 (Business) and in Part I, Item 1A (Risk Factors) of this Annual Report on Form 10-K.

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The key indicators necessary to understand our Asset-Light operating results are outlined below. These key indicators are used by management to evaluate segment operating performance and measure the effectiveness of strategic initiatives in the results of our Asset-Light segments. We quantify certain key indicators using key operating statistics which are important measures in analyzing segment operating results from period to period. These statistics are defined within the key indicators below and referred to throughout the discussion of results of our Asset-Light operations:

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Shipments per day – total shipments (excluding managed transportation solutions as discussed below) divided by the number of working days during the period, compared to the same prior-year period, for the ArcBest segment.

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Service events – roadside, preventative maintenance, or total service events during the period, compared to the same prior-year period, for the FleetNet segment.

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Revenue per shipment or event – total segment revenue divided by total segment shipments or events during the period (excluding managed transportation solutions for the ArcBest segment as discussed below), compared to the same prior-year period.

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Purchased transportation costs as a percentage of revenue – the expense incurred for third-party transportation providers to haul or deliver freight during the period, divided by segment revenues for the period, expressed as a percentage.

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Operating ratio – the percent of operating expenses to revenue levels.

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Presentation and discussion of the key operating statistics of revenue per shipment and shipments per day for the ArcBest segment exclude statistical data of the managed transportation solutions transactions. Growth in managed transportation solutions has increased the number of shipments for these services to approximately one half of the ArcBest segment’s total shipments, while the business represents less than 20% of segment revenues for the year ended December 31, 2020. Due to the nature of our managed transportation solutions which typically involve a larger number of shipments at a significantly lower revenue per shipment level than the segment’s other service offerings, inclusion of the managed transportation solutions data would result in key operating statistics which are not representative of the operating results of the segment as a whole. As such, the key operating statistics management uses to evaluate performance of the ArcBest segment exclude managed transportation services transactions.

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Other companies within our industry may present different key performance indicators or they may calculate their key performance indicators differently; therefore, our key performance indicators may not be comparable to similarly titled measures of other companies. Key performance indicators should be viewed in addition to, and not as an alternative for, our reported results. Our key performance indicators should not be construed as better measurements of our results than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.

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Asset-Light Results

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For the year ended December 31, 2020 and 2019, the combined revenues of our Asset-Light operations totaled $984.2 million and $950.1 million, respectively, accounting for approximately 32% and 31% of our total revenues before other revenues and intercompany eliminations in 2020 and 2019, respectively. Our Asset-Light results for 2020, compared to 2019, reflect stronger demand for the services of our ArcBest segment in the second half of the year which was positively impacted by tighter truckload capacity in the markets we serve, partially offset by the impact of reduced demand for our Asset-Light services during 2020, primarily in the second quarter of the year, as a result of the COVID-19 pandemic.

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ArcBest Segment

The following table sets forth a summary of operating expenses and operating income as a percentage of revenue for the ArcBest segment:

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A comparison of key operating statistics for the ArcBest segment, as previously defined in the Asset-Light Overview section, is presented in the following table:

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ArcBest segment revenues totaled $779.1 million and $738.4 million in 2020 and 2019, respectively. The 5.5% increase in 2020 revenues, compared to 2019, primarily reflects a 4.9% increase in revenue per shipment associated with higher market prices resulting from tighter truckload capacity and continued demand for our managed transportation solutions, partially offset by a 4.9% decline in shipments per day (excluding managed transportation shipments). The impact of a softer economic environment during the first quarter of 2020 and the effects of the COVID-19 pandemic on customer demand, including closure of certain customers’ operations for a period of time, during the second quarter of 2020 contributed to the lower shipments for the year. The second half of 2020 experienced an increase in revenues, compared to 2019, impacted by strong demand, primarily for our expedite, truckload, and managed transportation services, as a result of improvements in customer business levels.

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Third-party capacity, particularly for truckload services, has been relatively volatile in recent years. More available truckload capacity, combined with a softer economic environment throughout 2019 and the first quarter of 2020, resulted in a market-driven reduction in pricing for many services of the ArcBest segment. The negative impact of the COVID-19 pandemic on demand for transportation and logistics services during the second quarter of 2020 resulted in a further decline in market pricing. Market pricing improved in the second half of 2020, compared to the same period of 2019, due to the impact of capacity constraints in the industry. Significant changes in market capacity, such as those experienced during 2020, impact the cost of sourcing such capacity which may not correspond to the timing of revisions to customer pricing and our revenue per shipment.

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Operating income totaled $9.7 million for 2020, compared to an operating loss of $20.2 million for 2019, primarily due to higher revenues in 2020 and the impact of a $26.5 million (pre-tax) impairment charge in 2019. The ArcBest segment recorded this noncash impairment charge in the fourth quarter of 2019 related to the impairment of certain goodwill, customer relationship intangible assets, and revenue equipment associated with the acquisition of truckload and dedicated businesses within the segment. The impairment resulted primarily from underperformance of the truckload and dedicated businesses within the ArcBest segment, driven by economic conditions and the effect of excess truckload market capacity on margins during 2019.

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Increased customer shipping levels combined with limited equipment availability in the logistics marketplace positively impacted demand for premium ground expedite services in the second half of 2020 and contributed to the segment’s operating improvement for 2020, compared to 2019. The segment’s purchased transportation costs increased by 1.3 percentage points as a percentage of revenue for 2020, compared to 2019. Due to changes in market conditions and freight mix, the prices paid for purchased transportation increased by a higher percentage than the prices we secured from customers, resulting in margin compression during 2020, compared to 2019. Operating results of the ArcBest segment benefited from lower shared services costs due to lower business levels. Although the ArcBest segment manages costs with shipment levels, portions of operating expenses are fixed in nature and cost reductions can be limited as the segment strives to enhance capacity sources and maintain customer service.

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ArcBest Segment – First Quarter-to-date 2021

Revenues of our ArcBest segment (ArcBest Asset-Light operations, excluding FleetNet) increased approximately 50% on a per-day basis through late-February 2021, compared to the same prior-year period, reflecting increases in shipments per day and revenue per shipment as the segment continued to benefit from stronger demand and higher market prices resulting from tighter truckload capacity. The first quarter-to-date revenue comparison for 2021 to the same prior-year period was also positively impacted by continued demand for managed transportation solutions. Purchased transportation expense represented approximately 84% of revenues quarter-to-date in both periods. Current economic conditions will continue to impact business levels and purchased transportation costs of our ArcBest segment and, as such, there can be no assurance that the impact of the COVID-19 pandemic will not have an adverse effect on the operating results of our ArcBest segment in future periods.

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FleetNet Segment

FleetNet revenues totaled $205.0 million and $211.7 million in 2020 and 2019, respectively. The 3.2% decrease in revenues in 2020, compared to 2019, was driven by lower service event volumes, primarily reflecting a reduction in miles driven by customers as a result of the COVID-19 pandemic.

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FleetNet’s operating income was $3.4 million and $4.8 million in 2020 and 2019, respectively. The year-over-year decrease in operating income was impacted by the effect of lower revenues, as a portion of operating costs are fixed in nature and increase as a percent of revenue with decreases in revenue.

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Asset-Light Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“Adjusted EBITDA”)

We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP performance measures and ratios, such as Adjusted EBITDA, utilized for internal analysis provide analysts, investors, and others the same information that we use internally for purposes of assessing our core operating performance and provides meaningful comparisons between current and prior period results, as well as important information regarding performance trends. The use of certain non-GAAP measures improves comparability in analyzing our performance because it removes the impact of items from operating results that, in management's opinion, do not reflect our core operating performance. Management uses Adjusted EBITDA as a key measure of performance and for business planning. The measure is particularly meaningful for analysis of our Asset-Light businesses, because it excludes amortization of acquired intangibles and software, which are significant expenses resulting from strategic decisions rather than core daily operations. Management also believes Adjusted EBITDA to be relevant and useful information, as EBITDA is a standard measure commonly reported and widely used by analysts, investors, and others to measure financial performance of asset-light businesses and the ability to service debt obligations. Other companies may calculate Adjusted EBITDA differently; therefore, our calculation of Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our reported results. Adjusted EBITDA should not be construed as a better measurement than operating income, operating cash flow, net income, or earnings per share, as determined under GAAP.

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Asset-Light Adjusted EBITDA

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