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.
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