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Supply Chain Graphic of the Week: Carrier Operating Performance by Mode for Q4 2016

 

Rail Carriers Continue to be Far More Profitable than Truckload or LTL Sectors; Old Dominion Slows but Still Far Outperforms Rivals

March 9, 2017
SCDigest Editorial Staff

We just finished our Q3 2016 review of US truckload, rail and LTL carrier results and trends. (See Tough Q4 and Full Year 2016 for Truckload Carriers, Rail Carriers Keep Profits Rolling in Q4 Despite Weak Volumes,and Amid Soft Q4, Old Dominion Takes Nearly All the LTL Profits.)

All told, it was a weak quarter yet again for carriers in all three sectors, driven by slowing freight volumes, as it was for all of 2016. However, 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 modestly strong rate environment, based on commentary in their Q4 earnings calls. Rates were down in the truckload sector, according to earnings releaes and the Cass Linehaul Index.

We'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes in Q4, as shown in the graphic below. Note that net income is based usually on each carrier's total business, which may include other sectors, such as the large intermodal business at truckload carrier JB Hunt, and not just straight truckload or LTL results. Still, the comparisons are useful (though operating ratios are usually just for that TL or LTL business unit, as reported by the carriers).

 

Q4 2016 US Operating Metrics by Mode
  Truckload Sector Rail Sector LTL Sector
Average Net Income as a Percent of Sales Q4 2016 6.4%% 19.0% 3.4%
Average Net Income as a Percent of Sales Q4 2015 7.6% 18.8% 4.0%
Best Net Income as a Percent of Sales 9.4%% 22.1% 9.2%
Heartland Express Union Pacific Old Dominion
Average Operating
Ratio Q4 2016 
90.3% 65.8% 94.0%
Average Operating
Ratio Q4 2015
87.1% 68.9% 93.6%

Best Operating Ratio

Q4 2016

83.3% 62.0% 84.5%
Heartland Express 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 quarter of 19.0%, up a bit from the average of 18.8% in Q4 2015 on mixed volumes (some up, some down). By comparison, truckload carriers had net profit margins of only 6.4%, and just 3.4%% 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 24.5 percentage points better than for truckload carriers and about 29 percentage points better than the LTL sector average.

 

The truckload and LTL sectors saw average operating ratios rise in the quarter, though just barely in LTL, while the rail carriers saw more than a three percentage point improvement. Truckload carriers on average saw a sharp 3.2 percentage point increase. Union Pacific again led the way here, with an impressive OR in the quarter of just 62.0%.

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 six TL carriers we follow and then divide by six. Size of the carrier in revenues is not factored in.

Union Pacific also as usual took the top spot in terms of highest net income as a percent of sales, at a strong 22.1%. The sector average of 19.0%, however, stacks up favorably with companies in almost any industry. Compare those numbers to just a 4.0% profit margin at GM, or 10% at consumer products giant Unilever.

In LTL, Old Dominion after a multi-year run has started to see its results slow. Q4 revenue was up just 1.5%, and net income was down 5.1%. For many years until recently Old Dominion was seeing near or more than double digit gains in those metrics.

 

That said, Old Dominion came in with an OR of 84.5%, almost 10 percentage points better than the LTL sector average and 5.8 percentage points better than the truckload group average. In fact, Old Dominion's OR was beaten in the truckload segment by only two of the seven carriers we follow: Heartland Express and Knight Transportation, and that by two points or so.

 

If you take Old Dominion out of the calculation, its LTL competitors had an average OR of 97.1% in Q4, 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.

 

Your Comments/Feedback

Srihari

Senior Consultant, Infosys
Posted on: May, 22 2016
Great article. I am a little suprised not to see BNSF in the mix while I understand their financial mode/operation is a little different. 

That would only give a complete perspective with all the players in the pool.

Mike O'Brien

Senior editor, Access Intelligence
Posted on: May, 26 2016
Surprised to see Home Depot fall off the list; thought they were winning with Sync?

Julie Leonard

Marketing Director, Inovity
Posted on: Jun, 27 2016
Using the right tool for the right job has always been a best practice and one of the reasons, we feel, that RFID has never taken off in the DC as exponentially as pundits have been forecasting since 2006. While these results may seem surprising to those solely focused on barcode scanning, the adoption of multi-modal technologies in the DC makes perfect sense for greater worker efficiency and productivity.

Carsten Baumann

Strategic Alliance Manager, Schneider Electric
Posted on: Aug, 19 2016

The IoT Platform in this year's (2016) Hype Cycle is on the ascending side, entering the "Peak of Inflated Expectation" area. How does this compare to the IoT positions of the previous years, which have already peaked in 2015? Isn't this contradicting in itself?

Editor's Note: 

You are right, Internet of Things (IoT) was at the top of the Garter new technology hype curve not long ago. As you noted, however, this time the placement was for “IoT Platforms,” a category of software tools from a good number of vendors to manage connectivity, data communications and more with IoT-enabled devices in the field.

So, this is different fro IoT generally, though a company deploying connected things obviously needs some kind of platform – hoe grown or acquired – to manage those functions.

Why IoT generically is not on the curve this year I wondered myself.

 

 

Jo Ann Tudtud-Navalta

Materials Management Manager, Chong Hua Hospital, Cebu City, Philippines
Posted on: Aug, 21 2016

I agree totally with Mr. Schneider.

I have always lived by "put it in writing" all my work life.  I am a firm believer of the many benefits of putting everything in writing and I try to teach it to as many people as I can.

This "putting in writing" can also be used for almost anything else.  Here are some general benefits (only some) of "putting in writing":

1. Everything is better understood between parties involved.  There are lots of people types who need something visual to improve their understanding.
2. Everyone can read to review and correct anything misunderstood.  This will ensure that all parties concerned confirm the details of the agreements as correct.  This is further enhanced by having all parties involved sign off on a hard copy or confirm via reply email.
3. Everything has a proof.  Not to belittle the element of trust among parties involved, it is always safest to have tangible proof of what was agreed on.
4. There will be a document to refer to at any time by any one who needs clarification.
5. The documentation can be useful historical data for any future endeavor.  It provides inputs for better decisions on related situations in the future.
6. This can also be compiled and used to teach future new team members.  "Learn from the past" it is said.

There are many more benefits.  Mr. Schneider is very correct about his call to "put it in writing".





Sandy Montalbano

Consultant, Reshoring Initiative
Posted on: Aug, 24 2016
U.S. companies are reshoring and foreign companies are investing in U.S. locations to be in close proximity to the U.S. market for customer responsiveness, flexibility, quality control, and for the positive branding of "Made in USA".

Reshoring including FDI balanced offshoring in 2015 as it did in 2014. In comparison, in 2000-2007 the U.S. lost net about 200,000 manufacturing jobs per year to offshoring. That is huge progress to celebrate!

The Reshoring Initiative Can Help. In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the nonprofit Reshoring Initiative's free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

Robert

Transportation Manager, N/A
Posted on: Aug, 30 2016
 Good article!  I am sending this to my colleagues who work with me.  We have to keep this in mind.  Thanks!

Ian Jansen

Mr, NHLS
Posted on: Sep, 14 2016
SCM is all about getting the order delivered to the Customer on date/ time requested because happy Customers = Revenue. Using the right tools to do the right job is important and SCM is heavily dependent on sophisticated ERP systems to get right real data info ASP.

I've worked in a DC with more than 400,000 line items and measured the Productivity of Pickers by how many "picks" per day.

I've learned that one doesn't have to remind Germany about your EDI orders.

Don Benson

Partner, Warehouse Coach
Posted on: Sep, 15 2016
Challenge - to build and sustain effective relationships at the level of the organizations that are responsible for effectively coordinating and colaborating in an otherwise highly competitive environment 

Jade

Admin, Fulfillment Logistics UK Ltd
Posted on: Oct, 02 2016
Of course we all need to up our game. We need to move with the times, and always be one step ahead of what the future will bring.

Mike Dargis

President of asset-based carrier based in the Midwest, Zip Xpress Inc. (at ZipXpress.net)
Posted on: Oct, 03 2016
Thanks for the article, but I know there's a lot more to this issue than just the pay rates. Please check out my blogs on the subject at www.zipxpress.net.

Blaine

Inventory Specialist, Syncron
Posted on: Nov, 16 2016
Lora, great article! I agree that companies choose the 'safe' solution more often than not. My solution is a bolt-on for legacy ERP's and we even face challeneges of customer adoption. Most like to play it safe and choose an ERP upgrade, which is more costly, time consuming, and has lower ROI across the board. Would love to learn more about your company, we are always looking for partnerships.

Blaine
blaine.schultz@syncron.com

Bob McIntyre

National Account Executive, DBK Concepts LLC
Posted on: Nov, 21 2016
This is a game changer in GE's production and prototyping.  It also has huge implications across the GE global supply chain with regard to the management of their support and spare parts network. 
 
 

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