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Supply Chain Graphic of the Week: Carrier Operating Performance by Mode for Q2 2017

 

Truckload Carriers are the Weak Sisters in Q2, While Rail Carriers Continue to be Far More Profitable than Truckload or LTL Sectors

Sept. 7, 2017
SCDigest Editorial Staff

We just finished our Q2 2017 quarterly review of US truckload, rail and LTL carrier results and trends. (See Truckload Carriers See Mixed Q2 Results, with Signs of Freight Strength Coming, Rail Carriers have Strong Q2 on Back of Soaring Coal Shipments, and Strong Q2 for Three of Four Public LTL Carriers, as Profits Soar.)

Q2 was generally an upbeat quarter for LTL nd rail carriers, with truckload lagging behond though most carriers saying there were positive signs at quater's end and into Q3.

 

Interestingly, much of the rise in rail carrier profits can be attributed to soaring coal volumes, sharply reversing the predominant trend over the past few years.

 

We'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes in Q2, 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, and the operating ratios we provide are usually just for that TL or LTL business unit, as they are broken out by operating segment by most carriers.

 

Q2 2017 US Operating Metrics by Mode
  Truckload Sector Rail Sector LTL Sector
Average Net Income as a Percent of Sales Q2 2017 5.9% 20.1% 5.1%
Average Net Income as a Percent of Sales Q2 2016 6.2% 18.6% 4.7%
Best Net Income as a Percent of Sales 11.3% 22.2% 10.8%
Heartland Express Union Pacific Old Dominion
Average Operating
Ratio Q2 2017 
90.5% 64.8% 91.1%
Average Operating
Ratio Q2 2016
88.5% 68.7% 91..8%
Best Operating Ratio 83.6% 61.8% 80.9%
Heartland Express Union Pacific 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 20.1%, up from the average of 18.6% in Q2 2016. By comparison, truckload carriers had net profit margins of only 5.9%, and just 5.1% 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 26 percentage points better than for truckload carriers and about 27 percentage points better than the LTL sector average.

 

The rail and truckload sectors saw average operating ratios fall in the quarter, with the rail sector dropping the measure by almost four percentage point. The average LTL OR fell just a bit, to 91.1%, with truckload carriers seeing their average OR rise two percentage points. Rail carrier Union Pacific once again led with an impressive OR or 61.8%, with a target to drive that metric below 60 soon.

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 20.1% stacks up favorably with companies in almost any industry. By way of comparison, the same measure in Q2 was 13.7% at Procter & Gamble, and 8.8% at UPS.

In LTL, Old Dominion came in with a strong OR of 80.9%, about 10 percentage points better than the LTL sector average and about 9 percentage points better than the truckload group average. Old Dominion's OR was better than the top score oin the truckload side, the 83.6% achieved by Heartland Express in Q2.

 

If you take Old Dominion out of the calculation, its LTL competitors had an average OR of 94.5 % in Q2, 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.

 

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