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Supply Chain Graphic of the Week: Carrier Operating Performance by Mode for Q1 2017

 

Rail Carriers Continue to be Far More Profitable than Truckload or LTL Sectors, as Truckload and LTL Profits Decrease

May 30,2017
SCDigest Editorial Staff

We just finished our Q1 2017 review of US truckload, rail and LTL carrier results and trends. (See Yet Another Soft Quarter for US Truckload Carriers in Q1, as Volumes, Rates Remain Weak, US Rail Carriers See Strong Volume, Profit Growth in Q1, and Have and Have Nots in LTL Sector in Q1, as Old Dominion and Saia Look Strong.)

It was a somewhat mixed quarter across the three modes, with rail carriers seeing something of a rebound in volumes, with softness in the truckload sector and middling results in LTL.

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 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 report, as they are broken out by segment by most carriers).

 

Q1 2017 US Operating Metrics by Mode
  Truckload Sector Rail Sector LTL Sector
Average Net Income as a Percent of Sales Q3 2017 5.2%% 18.0% 2.7%
Average Net Income as a Percent of Sales Q3 2016 6.9% 17.5% 3.1%
Best Net Income as a Percent of Sales 10.8%% 21.9% 8.7%
Heartland Express Union Pacific Old Dominion
Average Operating
Ratio Q33 2017 
91.8% 68.8% 96.0%
Average Operating
Ratio Q3 2016
89.0% 68.7% 95.3%
Best Operating Ratio 83.2% 64.9% 85.7%
Heartland Express Kansas City Southerm Old Dominion
Source: SCDigest Analysis

 

As can be seen, rail carriers as a group remain simply far more profitable than truckload or LTL carriers, with profits as a percent of revenue for the quarter of 18%, up from the average of 17.5% in Q1 2016. By comparison, truckload carriers had net profit margins of only 5.2%, and just 2.7%% 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 23 percentage points better than for truckload carriers and about 27 percentage points better than the LTL sector average.

 

All three sectors saw average operating ratios rise in the quarter, though just barely in the rail sector, with truckload carriers on average seeing a sharp 2.8 percentage point increase. Rail carrier Kansas City took the top spot for a change from Union Pacific, with an impresssive OR in the quarter of just 64.9%.

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.

The rail sector average net profits of 18%, however, stacks up favorably with companies in almost any industry. To get a sense of that profit margin, consider that in Q1 consumer products company Colgate-Palmolive came in at 15.1%, Walmart at 2.9%, and Nike at 13.5%.

In LTL, Old Dominion came in with an OR of 85.7%, almost 11 percentage points better than the LTL sector average and about 7 percentage points better than the truckload group average. For a change, however, Old Dominion's OR was not better than the top score in the truckload side, the 83.2% achieved by Heartland Express in Q1.

 

If you take Old Dominion out of the calculation, its LTL competitors had an average OR of 99.4 % in Q1, meaning Old Dominion was about 14 percentage points better. That in turn means that for every $1 million in revenue, OD drops an extra $140,000 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. 

Kai Furmans

Professor, KIT
Posted on: May, 22 2017
I am referencing to the comment that leasing of warehousing equipment (beyond forklift trucks) is a vision for 2030.
Just recently in Europe, such a business model has started, see here: https://next-intralogistics.de/

I am following with a lot of interest, how the business develops.

 
 

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