It was the second consecutive solidly profitable quarter for carriers across the three modes of rail, truckload, and less-than-truckload.
What was a bit odd is that with freight volumes rising in Q3 and still very tight truckload capacity, that scenario also helped rail and LTL carriers, as some TL volumes were diverted to these other modes as well.
We'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes in Q3, as shown in the graphic below. Note that net income is based on each carrier's total business, while the operating ratio in the case of truckload is just on each carriers TL business alone, which explains why Heartland Express has the best net income as a percent of sales while Knight Transportation had the better operating ratio (Knight has other business units that drove its net income percentage down).
|Q3 2014 US Operating Metrics by Mode
|Average Net Income as a Percent of Sales
|Best Net Income as a Percent of Sales
|Average Operating Ratio Q3
|Average Operating Ratio Q2
|Best Operating Ratio
|Source: SCDigest Analysis
As can be seen, rail carriers as a group are simply far more profitable than truckload or LTL carriers. The average operating ratio, or operating expenses divided by operating revenue, a key metric in the transportation sector, for the rail carriers is an astounding 20 percentage points better than for truckload carriers and about 26 percentage points better than the LTL sector.
That said, the LTL sector actually has almost made it backed to something respectable financial results, with an overall net income as a percent of revenue up to 5.2% (from 3.7% in Q3 2013).
As can be seen, average operating ratios, based on the select groups of public carriers we follow, were basically flat across all three modes sequentially from Q2 to Q3. Not shown, but all three modes did improve a percentage point or two from ORs in Q3 2013.
Note: The "average" operating ratio per mode is unweighted, meaning for example that to calculate this number for the truckload sector, we simply add the operating ratios of the seven TL carriers we follow and then divide by seven. Size of the carrier in revenues is not factored in.
While all the rail carriers showed strong results, one once again has to be impressed with the continued performance of Union Pacific. Its net income of 22.2% of revenue compares favorably with companies in almost any sector - for example, Procter & Gamble achieved net income as a percent of sales of just 9.5% in Q3. And it wasn't that many years ago the rail sector could hardly earn a dime.
In LTL, the results from Old Dominion continue to stand out, as it continues to far outperform the rest of the LTL market. It came in with an OR 9 percentage points better than the LTL sector average and 3.8 percentage points better than the truckload sector average. If you take Old Dominion out of the calculation, its competitors had an average OR of 94.3, meaning Old Dominion was more than 11 percentage points better. That in turn means that for every $1 million in revenue, OD drops an extra $110,000 or so to the bottom line than do its LTL competitors on average.
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