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- Aug. 19, 2015 -


Supply Chain Graphic of the Week: Q2 2015 US Carrier Operating Performance by Mode


All Three Modes Followed Showed Improvement in Q2, While Union Pacific, Knight Transportation, and Old Dominion Continue to Put Up Impressive Numbers


By SCDigest Editorial Staff



We just finished our Q2 2015 review of truckload, rail and LTL carrier results and trends (see US Truckload Carriers Enjoy Generally Strong Q2, Finally Starting to Add Trucks; Rail Carriers have Somewhat Tough Q2, but Still Highly Profitable;US LTL Carriers have Rare Strong Quarter in Q2.)

It was the fifth consecutive solidly profitable quarter for carriers across the three modes of rail, truckload, and less-than-truckload.


So we'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes for the quarter, as shown in the graphic below. Note that net income is based usually on each carrier's total business, which may include other businesses, such as the generally fast growing intermodal segment at truckload carrier JB Hunt (though it uncharacteristically saw slow growth in Q2).


However, almost always we are able to find or calculate the operating ratio for the specific business segment at hand (truckload, LTL, etc.) at each carrier, which is the data is used in the table below. The operating ratio, or operating expense divided by operating revenue, is a key metric in the transport sector.



Q2 2015 US Operating Metrics by Mode
  Truckload Sector Rail Sector LTL Sector
Average Net Income as a Percent of Sales Q2 7.0% 19.5% 5.9%
Best Net Income as a Percent of Sales Q2 12.2% 22.2% 11.9%
Heartland Express Union Pacific Old Dominion
Average Operating Ratio Q2 2015 87.0% 70.6% 90.8%
Average Operating Ratio Q2 2014 87.1% 71.6% 92.1%
Best Operating Ratio Q2 78.8% 64.8% 81.5%
Knight Transportation Union Pacific Old Dominion
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 for the rail carriers was more about 17 percentage points better than for truckload carriers and more than 20 percentage points better than the LTL sector - though these gaps narrowed a bit from Q2, as LTL group especially turned in its best operating ratio performance in quite a while.


In fact, the generally beleaguered LTL sector continues to improve its recent financial performance, driven by a positive rate environment for carriers, with an overall net income as a percent of revenue of 5.9%, not that far away from the truckload sector average of 7.0%.


As can be seen, average operating ratios, based on the select groups of public carriers we follow, were basically flat in Q2 versus 2014 for truckload carriers, down a point for rail, and down a solid 1.3 percentage points for LTL.


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 revenues is not factored in.


Net income as a percent of sales is weighted, however.


In general, rail carriers results were down, with plunging coal volumes leading to an 8.4% drop in net income. But profit margins stayed strong. Once again one 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. By comparison, profit as a percent of revenue was just 3% at GM in Q2, and 11.8% at Procter & Gamble.


The average for the group of four rail carriers was 19.5% of sales. Apparently, railroads are where you make the money these days.


In the truckload sector, Knight Transportation's operating ratio of 78.8% really stands out, far below the industry average of 87%..


In addition, the results from Old Dominion continue to impress, as it continues to far outperform the rest of the LTL market. It came in with an operating ratio more 9.3 percentage points better than the LTL sector average and 6.5 percentage points better than the truckload sector average.


If you take Old Dominion out of the calculation, its competitors had an average OR of 93.1%, meaning Old Dominion was more than 12 percentage points better. That in turn means that for every $1 million in revenue, OD drops an extra $120,000 or so to the bottom line than do its LTL competitors on average.


Quite an advantage.


Any Feedback on our Supply Chain Graphic of the Week? Let us know your thoughts at the Feedback section below.


Recent Feedback

Rail carriers are more profitable on an operating basis, yes, but they have to spend capital to maintain their own right-of-way infrastructure. Truck carriers have an advantage because they don't have to do so, i.e. their right-of-way cost (highway taxes) is a variable cost instead of a fixed cost. To say that rail is the better place to invest to make money cannot be claimed based on just looking at the operating ratio. One needs to include the cost from depreciation on assets for operations, including right-of-way.

Jonathan Smith
Manager, Logistics Engineering
Aug, 31 2015

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