2023 Q3 Carrier Earnings: Old Dominion Freight

Old Dominion's 3rd quarter 2023 results are out, and once again they cranked out an impressive operating ratio.??

Yes, Yellow’s closure has floated the boats for all remaining carriers - but overall, the LTL market is still soft.??

In our last edition, we broke down the Earnings reports in Q3 from TForce Freight and dissected what we found. In a similar sense, this iteration will dig into the reports from Old Dominion to better understand what’s influencing the achievements or difficulties within their operations.

This series closely examines the 3Q23 reports from eight prominent carriers in order to determine what is driving their successes or challenges within the logistics industry.

For more information about carrier performance reporting, click here to connect with someone on our team today.

Let's find out what insights ODFL management has to offer regarding their performance.

???? Carrier 4: Old Dominion

• Revenue was down 5.5% versus last year but was up 7.2% sequentially as influenced by Yellow.

• Similarly, shipment counts are down 4.4% year over year but up 4% Q2 to Q3 of this year (thanks Yellow.)

• Tonnage is down -8.4% from last year but up 2.0% sequentially.??
• Unlike the rest of the metrics, Rev/cwt was actually up 3.1% over last year.

One concern is that weight/shipment continues to fall and is down -4.1%. It helps support Rev/cwt, but from a cost perspective, it poses some challenges.

Impressively, ODFL was able to maintain a solid 70.6 OR, even with shipments and tonnage being down.

??? Navigating through Yellow’s Closure

• ODFL did benefit from what happened to Yellow.??

Shipment counts averaged 47,077 during January-June but spiked to 49,670 in July-September, which was a 5.5% total increase.?

It shows that ODFL secured less than their pro rata share of Yellow’s business - roughly 10% of the LTL market.

• Importantly, Management noted that they believe the LTL market is SOFT overall. This seems to be supported by the fact that shipment count was down 4.4% even with Yellow going under.

• ODFL believes that they're winning new business from other carriers now because of their quality and value prop.

They did note that October business was strong partly due to the Estes cyber-security event, but they also anticipate that some of that business from the surge will eventually return to Estes.

• Across their network, management believes that they currently have 25% to 30% excess capacity.?

Based on daily feedback they receive about service issues, other carriers may not have as much excess capacity as perceived.

• They expect the OR in Q4 this year to be 1.5 to 2.0 points worse than their mark of 70.6?in Q3.

• They reported 99% on-time performance and a 0.1% claims ratio.

Self-reported numbers of course.... Not REAL numbers. (IYKYK)

???? Metrics and Milestones

• Management noted they were recently ranked #1 National Carrier by Mastio for 2023, coming out #1 in 25 of 28 categories.??

To them, receiving these rankings validates their focus on consistency and quality of service, as well as their ability to win market share.

• They aim to improve pricing 1.0% to 1.5% above costs each year with a long-term consistent approach, implying that they don't look to take advantage of the "pendulum swing" like some of their competitors do.?

The goal is for customers to appreciate this approach and for it to reflect in market share gains.

• ODFL has grown door count 50% over the last 10 years, whereas the combined door count across the rest of the public carriers is down 10% in that time.

• Though they made comment on just about everything, management wasn’t willing to discuss any plans to purchase Yellow terminals.??

However, they did note their intent to continue spending 10%-15% of revenue on CAPEX to grow market share, with the key being superior service at a fair price. Fair is a relative term here of course.

No secret that ODFL lives by the mantra 'you get what ya pay for'.

They believe they doubled market share over the last 10 years and can do that again over the next 10 years…

which, to us, means they’ll be a strategically aggressive bidder in the once-in-a-lifetime auction for these terminals. And that they're getting ready to rock.

????? ODFL management is pretty arroga.. err... I mean 'confident' in their service offerings! (rightfully so)

• ODFL strongly believes that no other carrier offers the overall value equation that they offer shippers.

• Getting into the slower months, they expect to see industry churn from the Yellow closure continue into 2024 as shippers start to re-evaluate their carrier usage.

About a third of their business comes from 3PLs - a segment that has actually grown a bit lately because of how many carriers have increased their transactional 3PL rates since Yellow closed.?

We know that ODFL does not handle a great deal of transactional (blanket) 3PL business.

• Not wanting to feel restricted by any deadlines, they still have the goal of hitting an OR below 70 on an annual basis but have no timeframe for it.??

For example, ODFL has a whopping $720M CAPEX plan this year, and yet, their tonnage earlier in the year was down double-digits.?

They want to keep their long-term focus which they believe will eventually lead to that sub-70 annual OR.

?? The Commitment is Real

Let’s admit it…we can't help but admire ODFL and how their long-term plan appears to perform well regardless of what point in the cycle the economy is in.??

The economy is strong and capacity is tight, they have ample capacity, and they make sure that service is top-notch.?

All are leading to market share gains for ODFL, particularly when other carriers raise prices higher than them.

During the down-cycle, their plan is very cost-disciplined and price-disciplined, and their ability to secure a premium price helps maintain healthy margins for investing purposes - even if they lose a bit of market share.?

Over time, they’ll just show that they can win it back.

ODFL won’t admit this, but there has to be some concern that one or more peers will be able to model their flywheel in all phases over several years and actually close the gap substantially on service, capacity, and discipline.??

After all, one peer even has a new COO who came from ODFL and helped craft the secret recipe. So it’s worth being a little suspicious…?

but it’s likely only "some" concern. Why?

ODFL did not get where they are over 5 years… or even 10 years.?

It has been a roughly 20-year plan with a complex set of parts, all working together, that are simply not duplicated as easily as that.??

Their competitors are making efforts, but what each actually does in the long term has yet to be seen.

Or, as Oscar Wilde would put it:

?? Coming Up Next: Either ABF, XPO, or Forward Air... you'll just have to stay tuned.

Keep an eye out for the next part of the series tomorrow within our Q3 Earnings series - the next carriers to analyze include ArcBest Freight (ABF), XPO Logistics, and Forward Air.

Looking to diversify your LTL carrier portfolio? Rising LTL carrier profits like we see here mean it's time to test the field to ensure you're getting a fair rate. Click here to connect with someone on our team today.

This article was collaboratively written by “LTL Observers” - a collective of industry veterans spanning the carrier, shipper, 3PL, and tech provider spaces who are willing to share their opinions.

Disagree with these opinions? We'd love to add you to the line-up to make sure we're including a diverse set of LTL observers. Contact us today.