Executive Summary / Key Takeaways

• ArcBest is transforming from a traditional LTL carrier into an integrated logistics platform where Asset-Light growth (33% of revenue) feeds Asset-Based density, creating network effects that pure-play competitors cannot replicate, with Managed Solutions achieving double-digit growth and record volumes in Q3 2025.

• Technology investments in AI, predictive analytics, and automation are delivering tangible results: $20 million in year-to-date savings, 1% improvement in Asset-Based cost per shipment, and 32.6% improvement in Asset-Light productivity, enabling the company to offset 2.9% union wage inflation and rising insurance costs through genuine efficiency gains.

• The Asset-Light segment is approaching profitability despite market headwinds, posting a non-GAAP operating profit of $1.6 million in Q3 2025 versus a $4 million loss prior year, while the Asset-Based segment maintains pricing discipline with 4.5% average increases on contract renewals and a 90.3% operating ratio.

• ArcBest's strong balance sheet with approximately $400 million in available liquidity, net debt-to-EBITDA well below S&P 500 average, and disciplined capital allocation ($66 million returned to shareholders in 9 months) positions the company to gain market share as weaker competitors exit during the prolonged freight recession.

• Trading at 16.9x trailing earnings and 7.0x EBITDA with an enterprise value of $1.95 billion, ArcBest's valuation appears attractive relative to its transformation potential and 2028 targets of 87-90% Asset-Based operating ratio and $40-70 million Asset-Light operating income.

Setting the Scene: The Integrated Logistics Advantage

ArcBest Corporation, founded in 1923 as a local freight hauler in Fort Smith, Arkansas, has evolved over a century into a multibillion-dollar integrated logistics company that defies simple categorization. Unlike pure-play LTL carriers such as Old Dominion Freight Line (ODFL) or regional operators like Saia (SAIA), ArcBest operates a hybrid model that combines one of North America's largest less-than-truckload networks (ABF Freight) with a comprehensive suite of asset-light services including truckload brokerage, managed transportation, expedite, intermodal, and international freight. This integrated structure represents more than diversification—it creates a self-reinforcing ecosystem where each segment strengthens the other, a moat that traditional competitors cannot easily replicate.

The company generates revenue through two primary segments: Asset-Based (66% of total revenue) and Asset-Light (33-34%). The Asset-Based segment provides national, inter-regional, and regional LTL services, leveraging a network of approximately 800 additional doors added through strategic expansion. The Asset-Light segment, which includes the 2021 acquisition of MoLo Solutions and Panther Premium Logistics, offers flexible capacity solutions that feed LTL volumes and provide customers with a single source for complex supply chain needs. This combination positions ArcBest uniquely in a consolidating industry where customers increasingly demand end-to-end solutions rather than point-to-point transportation.

The broader freight market in 2025 remains challenging, with the manufacturing sector contracting for eight consecutive months as measured by PMI, elevated recession risk, and a sluggish housing market dampening freight volumes. The truckload market continues to suffer from excess capacity and low rates, causing some heavier LTL shipments (7,500 to 20,000 pounds) to shift to truckload. Yet these headwinds also create opportunity. ArcBest's management notes that long-term industry capacity has declined significantly, with many facilities leaving the market following the Yellow bankruptcy auction. This structural reduction in capacity, combined with ArcBest's technology investments and financial strength, positions the company to capture outsized growth when the market eventually turns.

Technology and Strategic Differentiation: The Productivity Engine

ArcBest's technology strategy centers on operationalizing AI and predictive analytics to drive measurable productivity gains across both segments. The company is not merely digitizing existing processes but fundamentally reimagining how freight moves through its network. In the Asset-Based business, AI-powered tools optimize labor planning, delivery routing, and dock operations in real-time, contributing to the most productive quarter since 2021. These investments delivered $20 million in year-to-date savings through better process adherence, smarter technology utilization, and enhanced safety practices.

The Vaux suite of hardware and software for warehouse and dock operations represents a cornerstone of this strategy. Innovative technology costs decreased consolidated operating results by $7.7 million pre-tax in Q3 2025 and $22.3 million year-to-date, reflecting heavy investment in pilot programs. While this pressures current margins, the strategic rationale is clear: these tools reduce the manager's planning hours from four hours to forty-five minutes at locations like Baltimore, freeing leadership for direct engagement with teams and improving service consistency. The dock management system built on Box Technology enhances visibility with real-time dashboards and prioritization tools, streamlining workflows and improving both speed and accuracy.

Perhaps most significantly, ArcBest became the first LTL carrier to launch space-based pricing years ago, anticipating the industry's move toward dimensional-based rating. This foresight positioned the company perfectly for the upcoming NMFTA classification changes. The February 2025 announcement of Voxx Vision, a 3D perception technology that transforms forklifts into intelligent mobile dimensioners, enhances transparency and compliance in freight handling. The pilot phase will provide critical data to refine the technology, but the strategic implication is already evident: ArcBest can help customers navigate classification changes with confidence while capturing more accurate shipment data to optimize network utilization.

In Asset-Light operations, the technology impact is even more pronounced. Shipments per employee per day improved 32.6% in Q3 2025, reaching an all-time high. The truckload carrier portal with lane matching and auto offer negotiation has grown adoption to 28%, with 52% of truckload shipments now digitally augmented. This frees up bandwidth for teams, improves margins, and reduces fraud. An inbound call automation pilot aims to automate routine calls so teams can focus on value-added customer requests. These initiatives are not just cost-cutting—they fundamentally improve the value proposition to customers while creating scalable, higher-margin operations.

Financial Performance: Evidence of the Inflection

The Q3 2025 results provide clear evidence that ArcBest's strategy is working, even in a difficult market. Consolidated revenue of $1.0 billion declined 1.4% year-over-year, but this headline masks significant underlying strength. Asset-Based revenue grew 2.4% to $726.5 million, driven by a 4.3% increase in daily shipments and 2.3% increase in daily tonnage. This shipment growth is particularly noteworthy because it occurred despite continued weakness in the manufacturing sector and a softer overall market. The company is taking share, with management noting they added over 100 new core LTL accounts in recent quarters.

The Asset-Based operating ratio of 90.3% in Q3 represents a 150 basis point deterioration year-over-year, but this includes the impact of a 2.9% increase in union wages and benefits under the 2023 ABF NMFA, higher purchased transportation costs to support shipment growth, and increased depreciation from recent equipment purchases. Critically, cost per shipment improved 1% year-over-year, demonstrating that productivity gains are offsetting inflationary pressures. The segment generated $70.2 million in operating income, and pricing discipline remains firm with a 4.5% average increase on deferred contract pricing renewals.

The Asset-Light segment's transformation is even more compelling. Revenue declined 7.6% to $356 million due to soft market conditions and a strategic reduction in less profitable truckload volumes, yet shipments per day increased 2.5% and revenue per shipment decreased 10.6% due to mix shift toward managed transportation with smaller shipment sizes. Despite the revenue headwind, the segment achieved non-GAAP operating income of $1.6 million—a $5.6 million swing from the prior year's $4 million loss. SG&A cost per shipment decreased over 13%, reaching the best level in Asset-Light history. This demonstrates that ArcBest can achieve profitability in this segment regardless of market conditions through disciplined cost control and mix optimization.

The "Other and Eliminations" category includes $15.7 million in pre-tax gains from property sales, including two service centers, which boosted consolidated operating income. While this is non-recurring, it reflects smart asset optimization—selling legacy facilities and reinvesting in strategically located properties acquired through the Yellow auction. The contingent earnout liability for the MoLo acquisition was reduced to zero in Q2 2025, reflecting remote probability of payment based on 2025 EBITDA projections, which increased operating results by $2.7 million year-to-date.

Outlook and Execution: The Path to 2028 Targets

Management's confidence in the long-term strategy is evident in the ambitious 2028 targets shared at the September 2025 Investor Day: improving the Asset-Based non-GAAP operating ratio to 87-90%, delivering Asset-Light non-GAAP operating income of $40-70 million, generating total operating cash flow of $400-500 million, and achieving non-GAAP EPS of $12-15. These targets imply significant margin expansion from current levels and require execution on multiple fronts.

For Q4 2025, management expects the Asset-Based operating ratio to increase approximately 400 basis points sequentially to around 94.3%, reflecting normal seasonality and softer market conditions. This guidance aligns with historical patterns but acknowledges that October trends showed daily shipments down 5% versus the typical 3% seasonal decline, with weight per shipment also under pressure from macro softness. The Asset-Light segment is expected to post an operating loss of $1-3 million in Q4, reflecting seasonality and current market dynamics.

The key execution variables are clear: continue driving productivity improvements to offset inflation, grow the higher-margin Managed Solutions business (which achieved double-digit growth and record volumes in Q3), optimize the truckload mix toward SMB customers, and maintain pricing discipline. Management is confident in achieving 80 basis points of annual improvement in revenue per shipment outpacing cost per shipment through 2028, a target that would transform the company's margin profile.

Capital allocation remains disciplined. 2025 net capital expenditures are now estimated at $200 million, down from the previous $225-275 million range, reflecting $25 million in net proceeds from Q3 real estate sales. This reduction demonstrates flexibility while still funding critical investments in revenue equipment ($130 million) and facility upgrades ($35 million). The balance sheet strength, with approximately $400 million in available liquidity and net debt-to-EBITDA well below S&P 500 average, provides strategic optionality for acquisitions or accelerated share repurchases. The Board increased the share repurchase authorization to $125 million in September, a clear signal of confidence in the long-term outlook.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is a deeper or more prolonged freight recession than anticipated. Extended periods of economic disruption could reduce industrial production and consumer spending, negatively impacting freight volumes beyond what productivity improvements can offset. The manufacturing sector's eight-month PMI contraction already contributes to decreased freight volumes, and further deterioration would pressure both segments. While ArcBest's integrated model provides some resilience, a severe recession would test the company's ability to maintain service levels and pricing discipline.

Execution risk around the technology transformation is significant. While early results are promising, scaling AI-driven optimization across the entire network requires cultural change and significant investment. If the productivity gains fail to materialize as planned, the company could face margin compression from union wage increases (2.9% in 2025, compounding to 4.2% annually through 2028) and rising insurance costs that added 90-160 basis points to the operating ratio in recent quarters. The $22.3 million year-to-date investment in innovative technology is substantial and must deliver measurable returns.

Competitive dynamics pose a threat. Old Dominion's 4.9% rate increase in November 2025 demonstrates pricing power that could pressure ArcBest's yields in shared markets. XPO (XPO)'s scale and technology investments enable notably faster booking and tracking, while SAIA's regional density creates service advantages in specific lanes. The truckload market's excess capacity continues to pull heavier LTL shipments (7,500-20,000 pounds) into that space, though management notes this is cyclical and carriers are slowly exiting due to prolonged pressures.

The NMFTA classification changes, while an opportunity for ArcBest given its space-based pricing leadership, could create near-term disruption if customers struggle to adapt. The company's ability to leverage its dimensioning tools and Voxx Vision technology to support customers through this transition will be critical to maintaining volume growth and pricing integrity.

On the positive side, significant asymmetry exists if the freight market recovers sooner than expected. ArcBest's investments in network capacity, technology, and customer relationships position it to capture outsized growth. The structural reduction in industry capacity following Yellow's exit means any demand recovery could drive rapid margin expansion. Additionally, if the Asset-Light segment achieves sustained profitability ahead of the 2028 target, it would validate the integrated model and likely drive multiple expansion.

Competitive Context: Positioning in a Consolidating Market

ArcBest's competitive positioning reflects its integrated strategy. Against pure-play LTL carriers like Old Dominion and Saia, ArcBest offers a broader solution set that includes brokerage, expedite, and managed transportation. This diversification provides resilience in soft markets but creates a higher cost structure that pressures margins relative to ODFL's lean 74.3% operating ratio. However, ArcBest's ability to feed LTL volumes through its Asset-Light relationships creates a network effect that pure-plays cannot replicate. When customers need capacity, ArcBest can say yes through multiple channels, strengthening relationships and creating stickiness that shows up in an 80% customer retention rate over 10 years.

Versus integrated competitors like XPO and TFI International (TFII), ArcBest's advantage lies in its proprietary technology and century-long operational expertise. XPO's scale enables lower unit costs and broader international reach, but ArcBest's specialized services like expedite freight and its Mexico presence offer differentiation. TFI's acquisition-heavy model creates operational inconsistencies that ArcBest's unified network avoids. The company's focus on SMB customers, which are less price-sensitive than large enterprise accounts, provides a more stable and profitable revenue base.

The technology gap versus competitors is narrowing but remains a challenge. While XPO and ODFL have advanced digital platforms, ArcBest's investments in AI-driven route optimization, dock management, and carrier portals are showing measurable results. The 32.6% improvement in Asset-Light productivity and 1% reduction in Asset-Based cost per shipment demonstrate that these are not vanity projects but genuine margin drivers. The key question is whether ArcBest can maintain this pace of innovation as larger competitors accelerate their own technology spend.

Valuation Context

Trading at $71.19 per share, ArcBest carries a market capitalization of $1.62 billion and an enterprise value of $1.95 billion. The stock trades at 16.9x trailing earnings and 7.0x EBITDA, a significant discount to pure-play LTL peers. Old Dominion commands 31.3x earnings and 18.6x EBITDA, while Saia trades at 31.3x earnings and 14.4x EBITDA. This valuation gap reflects ArcBest's lower margins (3.7% operating margin versus ODFL's 25.7% and SAIA's 14.1%) and the market's skepticism about the Asset-Light segment's profitability.

However, the valuation appears attractive relative to the transformation potential. The company's 0.48x enterprise value-to-revenue multiple is less than one-tenth of ODFL's 5.86x, suggesting the market assigns little value to the integrated model. The 24.4x free cash flow multiple is reasonable for a business generating $45.9 million in annual free cash flow while investing heavily in growth. With a debt-to-equity ratio of 0.35 and net debt-to-EBITDA well below average, the balance sheet provides flexibility that is not reflected in the valuation.

The 2028 targets provide a roadmap for potential re-rating. If ArcBest achieves the midpoint of its $12-15 non-GAAP EPS target, the stock would trade at just 5-6x that figure at current prices. While this requires successful execution on multiple fronts, the risk-reward appears compelling. The company's return on equity of 7.4% and return on assets of 2.8% trail competitors but are improving as technology investments mature.

Conclusion

ArcBest stands at an inflection point where its integrated logistics model and technology investments are beginning to generate measurable margin expansion, even in a challenging freight environment. The company's ability to drive 32.6% productivity improvements in Asset-Light while maintaining pricing discipline in Asset-Based demonstrates that this is not a traditional cyclical transportation play but a technology-enabled logistics platform.

The central thesis hinges on two variables: the pace of productivity gains from AI and automation investments, and the timing of the freight market recovery. If ArcBest continues delivering $20 million-plus in annual savings from technology while the industry capacity constraints drive pricing power in a recovery, the 2028 targets appear achievable and potentially conservative. The market's skepticism, reflected in a 7x EBITDA multiple versus 15-20x for peers, creates asymmetric upside.

Conversely, if execution falters—if technology investments fail to scale, if union cost inflation outpaces productivity gains, or if the freight recession extends beyond 2025—the integrated model's higher cost structure could pressure margins further. The next 12-18 months will be critical in determining whether ArcBest's transformation is recognized by the market or whether it remains valued as a cyclical LTL carrier with a struggling brokerage unit. For investors willing to look through the cycle, the combination of technology-driven productivity, network effects, and balance sheet strength presents a compelling long-term opportunity.