Supply Chain Graphic of the Week: Q2 2014 US Carrier Operating Performance by Mode

All Three Modes Saw Significant Gains in Profitability in Q2, While Union Pacific, Old Dominion Continue to Put Up Impressive Numbers

We just finished our Q2 2014 review of truckload, rail and LTL carriers results and trends for the first quarter of 2014 (see Q2 2014 Rail Carrier Review, Q2 2014 Truckload Carrier Review and Comment, and Large US LTL Carriers See Profits Jump in Q2).

In general, it was a solidly profitable quarter for carrriers across the three modes of rail, truckload, and less-than-truckload.

We'll take that 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.

Q2 2014 US Operating Metrics by Mode
	Truckload Sector	Rail Sector	LTL Sector
Average Net Income as a Percent of Sales	7.2%	19.9%	5.1%
Best Net Income as a Percent of Sales	11.9%	22.8%	10.5%
	Knight Transportation	Union Pacific	Old Dominion
Average Operating Ratio	86.8%	66.9%	92.1%
Best Operating Ratio	79.0%	63.5%	82.5%
	Knight Transportation	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. The average operating ratio, or operating expenses divided by operating revenue, a key metric in the transportation sector, for the rail carriers is an astounding 20 percentage points better than for truckload carriers and about 25 percentage points better than the profit challenged LTL sector.

All three sectors saw an improvement in average operating ratios, based on the select groups of public carriers we follow, with the truckload group seeing OR improve from 92.4% in Q1 to 86.8% in Q2, rail from 71.5% in Q1 to 66.9%, and LTL from 97.1% in Q1 to 92.1%. That improvement in OR then of course drove similar gains in net income as a percent of sales.

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

While all the rail carriers showed strong results, one has to be impressed with the continued performance of Union Pacific. It's net income of 22.8% of revenue compares favorably with companies in almost any sector - for example, Procter & Gamble achieved net income as a percent of sales of just 13.5% in Q2. And it wasn't that many years ago the rail sector could hardly earn a dime.

In LTL, the results from Old Dominion continues to stand out, as it continues to far outperform the rest of the LTL market. It came in with an OR 10 percentage points points better than the LTL sector average, and came in 4.3 5 percentage points better than the truckload sector average. If you take Old Dominion out of the calculation, its competitors had an average OR of 94.55, meaning Old Dominion was 12 percentage points better. That in turn means that for every $1 million in revenue, OD drops an extra $120,000 to the bottom line than do its LTL competitors.