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Old Dominion Freight Line (ODFL)Stock (Transportation Industry, Trucking Industry)
 Old Dominion Freight Line (ODFL) is a trucking company that primarily ships consumer goods. ODFL is the sixth largest less-than-truckload (LTL) firm in the U.S. based on revenue[1]. As a LTL shipper, Old Dominion consolidates freight from several customers in one trailer-load. Compared to truckload shippers who contract an entire trailer-load to a single client, LTL companies need broad networks of pickup and delivery service centers, as well as larger “breakbulk” facilities where shipments are consolidated and separated. Companies also need complex IT systems in order to track freight status information. The asset-intensive nature of the LTL business provides a barrier to entry for new firms. Besides its primary LTL business, (which comprises ~90% of revenue)[2], Old Dominion also offers domestic and global expedited (shipments that need to move more quickly than normal service, usually at a higher cost) and logistical services. In 2007, ODFL operated 192 service center locations nationwide, providing full-state coverage to 39 states[3]. The company needs an additional 60-70 service centers to flesh out its nationwide coverage[4]. A focus on higher freight density (metrics include weight per shipment and average revenue per service center) and expansion of its service center network have helped ODFL generate one of the highest operating margins of any public LTL firm[5]. As a transportation company, Old Dominion’s earnings are closely tied to the overall health of the economy. The firm maintains a diversified consumer base, with no client accounting for more than 1.9% of revenues in 2007 and limited exposure to the cyclical housing and automotive markets[1]. Another concern is rising fuel prices. After accounting for fuel surcharge recoveries, ODFL’s fuel costs increased 17.8% from 2006 to 2007[6]. Another challenge Old Dominion must contend with is the entry of shipping giants FedEx and UPS into the LTL business. These firms bring extensive resources and strong brand names into the LTL market. [edit] Business FinancialsOld Dominion operates as one business segment with four brands: OD-Domestic, OD-Expedited, OD-Global, and OD-Technology[7]. Domestic LTL shipping has historically comprised over 90% of revenues[2]. A focus on higher freight density (metrics include weight per shipment and average revenue per service center) and expansion of its service center network have helped ODFL generate one of the highest operating margins of any public LTL firm, averaging ~9% in the five years from 2003 to 2007[8]. In the five years prior to the economic downturn of 2007, ODFL had a 20% compound annual growth rate[8]. Expansion slowed in 2007, with revenues totaling $1.4B in 2007, a 9.5% increase from 2006[8]. This growth was chiefly the result of a 5.2% growth in shipments and a 4.1% increase in revenue per shipment[6]. Total tonnage shipped went up by 8.5%, and average revenue per service center increased 2.5%[9]. In the same period, net income posted a 1.0% decline to end at $71.8M[8]. The firm’s operating expenses were burdened by record fuel prices. ODFL’s fuel costs rose 15.8% from $289M in 2006 to $335M in 2007[6]. After accounting for fuel surcharge recoveries, fuel expense increased 17.8% to $161.2M in 2007 compared to $136.9M in 2006[6].    [edit] Trends and Forces[edit] Old Dominion’s Business is Susceptible to Economic ConditionsAs a transportation company, Old Dominion relies on a healthy economy to keep goods moving about the country. The firm maintains a diversified consumer base, with no client accounting for more than 1.9% of revenues in 2007 and limited exposure to the cyclical housing and automotive markets[1]. However, a slowing economy and low consumer demand will cause a total volume drop in shipments that can hurt Old Dominion’s earnings. In the five years prior to the economic downturn of 2007, ODFL had a 20% compound annual growth rate[8]. Expansion slowed in 2007, with only a 9.5% sales increase from 2006[8]. Additionally, many customers use a bidding system, which tends to keep prices fairly competitive. For instance, when Wal-Mart Stores (WMT) needs freight shipped, it asks several shipping firms to submit how much payment they are willing to accept. The lowest bid usually wins the contract. When shipping volume decreases in a weakening economy, small competitors bid down prices in order to win loads so that they can cover the cost of their tractors. [edit] Old Dominion’s Costs Are Affected By Fuel PricesSince 2004, diesel prices have more than tripled from $1.50 per gallon to $4.72 per gallon in May 2008 [10]. Like most of its competitors in the transportation industry, ODFL determines shipping rates by charging a base rate plus or minus a change in diesel prices. However, this fuel surcharge is not always fully and immediately transferable to the customer. For instance, fuel consumed when trucks are empty, off-route, or idling are not recoverable. ODFL’s fuel costs rose 15.8% from $289M in 2006 to $335M in 2007[6]. After accounting for fuel surcharge recoveries, fuel expense increased 17.8% to $161.2M in 2007 compared to $136.9M in 2006[6]. [edit] The entry of FedEx (FDX) and UPS into LTL Shipping Poses a Threat to Old DominionThe two giants of global shipping, FedEx and UPS, announced in 2005 that they would enter the less-than-truckload shipping business[11]. While Old Dominion’s established track record offers it a short-term advantage over these competitors, UPS and FedEx have greater resources and infrastructure networks. However, some industry analysts feel that UPS and FedEx will compete most heavily with each other, in terms of clients and in business models, leaving ODFL to its existing economic niche[11]. [edit] New Government Regulations Increase ODFL’s Operating CostsThe transportation industry is subject to a number of state and federal rules on issues such as insurance requirements, environmental standards, safety requirements, etc. In 2004, the Department of Transportation reduced the amount of time that drivers can spend behind the wheel[12]. And in 2002, the Environmental Protection Agency instituted new guidelines designed to reduce diesel truck emissions by 2010[13]. The latest stage in this process came into effect January 2007, after which all newly manufactured truck engines have to comply with a set of more restrictive engine emission requirements[7]. Trucks manufactured with the new engines have a purchasing price ~$5,000 to $10,000 higher than older models, are less fuel-efficient, and have higher maintenance costs[14]. [edit] ODFL’s Business Model Depends on Maintaining its Non-Union Workforce in a Tight Driver MarketThe driver market is the tightest it has been in 20 years, with turnover rate exceeding 100% in some large trucking companies[15]. According to the American Trucking Association, the trucking industry faced a national shortage of 20,000 drivers in 2007, a number that will swell to 111,000 by 2014[15]. This shortage increases the costs of trucking companies like ODFL as they struggle to attract and retain drivers. In addition, Old Dominion's business model revolves around the flexibility of its non-union workforce, which means its employees are free from union regulations restricting work hours and job functions[16]. Compared to competitors with unionized employees, ODFL’s labor force spends less time idle and more time contributing to profitable operations. The company’s ability to sustain this advantage depends on the maintenance of its non-union labor force. [edit] Competition and Market ShareOld Dominion Freight Line competes with a range of regional and national transportation and logistics companies. ODFL's direct competition is with other less-than-truckload firms who consolidate cargo from several different customers in one trailer-load. Key competitors in this segment include:
ODFL also competes with truckload carriers who contract entire trailers out to one customer. Competitors in this category include:
Market share figures assume trucking industry revenue of $357.7B in 2006[17]. Several of the listed companies earn a portion of revenues outside of transporting goods, such as warehousing and logistics. These instances usually account for less than 10% of the total sales. Note: A parenthesis around the figure indicates a negative number, i.e. (5.4%) is a decrease of 5.4%.
 Old Dominion Freight Line2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
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