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

 

Rail Carriers Continue to be Far More Profitable than Truckload or LTL Sectors; Union Pacific and Old Dominion Outpform Yet Again

Feb. 25, 2016
SCDigest Editorial Staff

We just finished our Q4 and full year 2015 review of US truckload, rail and LTL carriers results and trends. (See US Truckload Carriers See Mixed Q4, Amid Sluggish Freight Environment, Rail Carriers have Down Quarter in Q4, but Fundamentals Still Strong, and LTL Carriers See Weak Volumes in Q4, but Somehow Rate Still Up Sharply.)

All told, it was a weak quarter for carriers in all three sectors, driven by slowing freight volumes, but the full year results were stronger. For all of 2015, truckload carriers saw profits up 12.2%, while net income fell 8.6% in the rail sector and rose 36% in the LTL group, mostly on YRC Worldwide managing to turn a small profit versus a big loss in 2014.

We'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes for the full year, 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 growing intermodal business at truckload carrier JB Hunt, and not just straight truckload or LTL results. Still, the comparisons are valid.

 

2015 US Operating Metrics by Mode
  Truckload Sector Rail Sector LTL Sector
Average Net Income as a Percent of Sales 6.9% 18.9% 3.3%
Best Net Income as a Percent of Sales 10.1% 21.9% 10.3%
Knight Transportation Union Pacific Old Dominion
Average Operating
Ratio 2015 
87.3% 68.0% 92.5%
Average Operating
Ratio 2014
85.8% 67.8% 93.5%
Best Operating Ratio 80.7% 63.1% 83.2%
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, with profits as a percent of revenue for the year of 18.9%, versus 6.9% for truckload carriers and just 3.3% for the LTL group.

 

That is of course reflected in the different operating ratios, or operating expenses divided by operating revenue - a key metric in the transportation sector - which for the rail carriers is an astounding 21 percentage points better than for truckload carriers and about 24.5 percentage points better than the LTL sector average.

 

That even as the LTL sector was the only one of the three groups to improve its OR year over year, down a percentage point to 92.5% in 2015 versus 93.5% in 2014. The average operating ratio in the rail sector was up just a bit over 2014, while in the truckload sector it rose 1.5 percentage points.

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.

In the rail group, one once again has to be impressed with the continued performance of Union Pacific. Its net income of 21.9% of revenue compares favorably with companies in almost any sector. For example, Colgate-Palmolive achieved net income as a percent of sales of just 8.6% in 2015, and it was just 4.9% at Ford. 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 ince again far outperformed the rest of the LTL market. It came in with an OR more than 9 percentage points better than the LTL sector average and 4 percentage points better than the truckload group average. If you take Old Dominion out of the calculation, its competitors had an average OR of 95.6%, meaning Old Dominion was about 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 as a group.

That is quite an advantage indeed.


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

 

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