Old Dominion Freight Line is driving its trucks to the water’s edge and beyond, expanding its drayage and expedited less-than-containerload services.
The motor carrier is bolting these export- and import-oriented services onto its core North American less-than-truckload business, which has been growing by double-digits amid an expansion of ODFL’s multiregional network nationwide.
Last year, the Thomasville, N.C.-based freight hauler spent between $100 million and $120 million on its physical network, upgrading terminals and distribution centers and building new facilities. That expansion carries into 2012, the company says. “We had capital expenditures of $300 million in 2011, and we’re looking at $300 million to $350 million in capex spending this year,” Chief Strategy Officer Chip Overbey said. “That includes real estate, equipment and information technology.”
ODFL is building on a record of profitability that bridges the recession. The company was the only billion-dollar publicly owned LTL carrier to make a profit in 2009, resisting the temptation to enter a ferocious price war that decimated the bottom lines of larger competitors. Last year, ODFL increased its net profit 84.4 percent to $139.5 million while revenue rose 27.1 percent year-over-year to $1.98 billion.
Net profit leaped 80.8 percent in the fourth quarter to $39.9 million, and its operating ratio, a measure of profitability, dropped to 86.9 percent, a low for an industry accustomed to percentages in the 90s.
With a 9.8 percent year-over-year increase in fourth quarter shipments and 9.7 percent gain in tonnage, the carrier outpaced trucking industry growth. ODFL’s revenue per hundredweight, or yield, increased 10.7 percent in the fourth quarter, or 6.4 percent excluding fuel surcharges.
The yield expansion is a strong indicator of pricing strength, and ODFL has been consistent on pricing through a fluctuating market: Revenue per hundredweight rose more than 6 percent in each of the last four quarters, President and CEO David S. Congdon said. ODFL gained traction toward the year’s end, Congdon said, improving linehaul, pickup and delivery and platform operations at a faster pace than for the full year.
“We had a good fourth quarter … one of the strongest ones in the company history,” Overbey said. As a result, ODFL is in a stronger position to expand than many of its competitors and is taking advantage of the opportunity.
“I think their focus over the next two or three years is going to be revenue growth while maintaining profitability,” said Satish Jindel, president of SJ Consulting Group, a Pittsburgh-based transportation consultant. “They can focus on building market share without declining or losing their profitability.” In other words, ODFL doesn’t have to lower pricing or increase discounts to gain new business.
Whether its freight is sourced from Asia through its Pacific Promise service or picked up and delivered in the U.S., ODFL’s basic business boils down to inventory management, Overbey said. “More and more, the warehouse isn’t in a warehouse but in a carrier’s trailers,” he told The Journal of Commerce. “In increasingly regionalized and just-in-time shipping networks, people are trying to turn their inventories faster.”
That requires faster LTL transit times and a high level of service, Overbey said. “Freight rates are one thing, but the money is in the inventory turns,” with more and faster turns meaning more transportation savings and a more efficient supply chain. “And if we can help you improve your supply chain, we’re really a better partner.”
That’s the impetus behind the carrier’s drayage expansion and the addition of 10 Asian ports to its LCL service in the first two months of 2012. “We’re working to manage inventories better coming from Asia,” Overbey said.
To do that, ODFL now acts as a non-vessel-operating common carrier with connections to 23 ports in 10 countries throughout Asia, funneling Asian freight to its U.S. network. “We see this as a global economy. We’re trying to position our OD Global product to support that,” Overbey said.
ODFL’s drayage revenue increased 35 percent last year. On Feb. 1, the carrier opened a drayage terminal in its Seattle service center to serve the ports of Seattle and Tacoma. Last year, drayage facilities opened in Memphis, Mobile, Ala., and Baltimore. The new terminal brings the LTL carrier’s total to 14 drayage facilities nationwide. Those facilities work hand-in-glove with ODFL’s traditional LTL operations to move freight, Overbey said.
“We’re not just draying the goods from the ports when they come into the U.S.; we’re helping with deconsolidation,” he said. “We may split a containerized shipment into several LTL shipments to help a shipper turn inventory faster, rather than hauling the entire container to one distribution location.” In reverse, the company can consolidate goods for exporters that may find it more advantageous to keep smaller inventories at different locations and ship LTL to an ODFL drayage terminal.
“The two services can work hand-in-hand together if a good plan is put in place, Overbey said.”