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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 Outperform Yet Again,  but KCS Looks Strong Too

June 1, 2016
SCDigest Editorial Staff

We just finished our Q1 2016 review of US truckload, rail and LTL carriers results and trends. (See US Truckload Carriers Have Soft Q1, as Freight Volumes, Rates Mostly Down, Rail Carriers See Soft Volumes in Q1, but Rates, Efficiency Gains Protect Profits, and US LTL Carriers have Very Soft Q1, Although Again Rates Largely Held Up.)

All told, it was a weak quarter for carriers in all three sectors, driven by slowing freight volumes, but for the most part the carriers turned in decent operating results in terms of profitability, helped in the rail and LTL sectors by a still fairly strong rate  environment, based on commentary in their Q1 earnings calls. Rates were flatish in the truckload sector.

We'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes in Q1, as shown in the graphic below. Note that net income is based usually on each carrier's total business, which may include other sctors, such as the growing intermodal business at truckload carrier JB Hunt, and not just straight truckload or LTL results. Still, the comparisons are useful.

 

Q1 2016 US Operating Metrics by Mode
  Truckload Sector Rail Sector LTL Sector
Average Net Income as a Percent of Sales Q1 2016 5.5% 17.5% 2.2%
Average Net Income as a Percent of Sales Q1 2015 6.4% 17.0% 3.3%
Best Net Income as a Percent of Sales 8.8% 20.3% 8.5%
Heartland Express Union Pacific Old Dominion
Average Operating
Ratio Q1 2016 
90.3% 68.7% 95.8%
Average Operating
Ratio Q1 2015
88.2% 71.0% 94.2%
Best Operating Ratio 84.7% 65.1% 85.9%
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 17.5%, actually up a bit from Q1 2015, versus just 5.5% for truckload carriers and only 2.2% 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 22 percentage points better than for truckload carriers and about 27 percentage points better than the LTL sector average.

 

The rail carriers were the only group to improve its average operating ratio in the quarter, where it fell to 68.7% from 71.0%, based largely on big improvements at Norfolk Southern and Kansas City Southern.

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 20.3% of revenue, while down a bit from Q1 2015, compares favorably with companies in almost any sector. For example, Procter & Gamble achieved net income as a percent of sales of just 9.2% in Q1, and it was just 6.3% at GM.

 

And Kansas City Southern came close to UP's results, with net income of 19.2% of revenue, up from 16.8% in Q1 2015. 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 once again far outperformed the rest of the LTL market. It came in with an OR about 10 percentage points better than the LTL sector average and more than two percentage points better than the truckload group average. If you take Old Dominion out of the calculation, its LTL competitors had an average OR of 98.2% in Q1, meaning Old Dominion was about 13 percentage points better. That in turn means that for every $1 million in revenue, OD drops an extra $130,000 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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