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Nov. 30, 2017

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Supply Chain Graphic of the Week: Carrier Operating Performance by Mode for Q3 2017


Truckload Carriers are the Weak Sisters in Q3, While Rail Carriers Continue to be Far More Profitable than Truckload or LTL Sectors

Nov. 30, 2017
SCDigest Editorial Staff

We just finished our Q2 2017 quarterly review of US truckload, rail and LTL carrier results and trends. (See Strange Q3 for Truckload Carriers, as Market Strong, Profits Down, Rail Carriers See Profits Up Despite Low Volumes, Hurricanes, and Amid Generally Lackluster Results, Old Dominion Blows Away the LTL Field in Q3.)

Q3 was something of an odd quarter for the carriers, impacted in September by two major hurricanes. Truckload carriers saw mediocre results despite saying freight volumes were generally strong, while rail carriers had decent profit gains on weak volumes,


We'll take this occasion to once again present some interesting comparisons on operating metrics across each of these three modes in Q3, 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 4.5% 19.9% 4.5%
Average Net Income as a Percent of Sales Q2 2016 5.9% 19.7% 4.6%
Best Net Income as a Percent of Sales 5.4% 22.1% 11.7%
JB Hunt Union Pacific Old Dominion
Average Operating
Ratio Q2 2017 
92.0% 65.3% 91.7%
Average Operating
Ratio Q2 2016
91.5% 66.4% 92.1%
Best Operating Ratio 89.1% 62.8% 81.2%
Swift-Knight 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 19.9%, up just a bit from the average of 19.7% in Q3 2016. By comparison, truckload carriers had net profit margins of only 4.5%, and unusually no better than margins 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 27 percentage points better than for truckload carriers and about 26 percentage points better than the LTL sector average.


The rail sector saw average operating ratios fall in the quarter, with the rail sector dropping the measure by 1.2 percentage points. The average LTL OR fell just a bit, to 91.7%, with truckload carriers seeing their average OR rise half a percentage point to 92.0. Rail carrier Union Pacific once again led with an impressive OR or 62.8%, 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 19.9% stacks up favorably with companies in almost any industry. By way of comparison, the same measure in Q3 was 17.1% at Procter & Gamble, and 7.9% at UPS.

In LTL, Old Dominion came in with a strong OR of 81.2%, about 10 percentage points better than the LTL and truckload sector averages. Old Dominion's OR was far better than the top score on the truckload side, the 89.1% achieved by the newly merged Knight-Swift in Q2.


If you take Old Dominion out of the calculation, its LTL competitors had an average OR of 95.4 % in Q3, 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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