Old Dominion targets smaller LTL customers to lower shipment weight, improve efficiency

Dive Brief:

Old Dominion Freight Line's revenue and net income grew in Q3, and officials said during an earnings call on Tuesday that containing costs and improving the company's operating ratio were key. Low fuel costs were helpful during the COVID-19 pandemic, but Old Dominion officials said the LTL firm could have cut expenses regardless of diesel costs.
Greg Gantt, Old Dominion CEO, said the company was also able to guard its customer service and quality of delivery even as volumes recovered. "Shipment volumes accelerated at an unprecedented pace during the quarter," Gantt said in the earnings release. Gantt said during the call that Q3's on-time delivery came in at 99% and cargo claims came in at a "record low" 0.1%.
Old Dominion's operating ratio and overall efficiency benefited from lower weight per shipment, company officials said. The company tried to manage heavy loads by reducing weight per load, something Old Dominion was able to do by targeting smaller customers in need of LTL service, according to CFO Adam Satterfield. Satterfield said a good range for the LTL firm is between 1,570 pounds to 1,600 pounds, and that range is a sign smaller firms are coming back from pandemic-related woes to do business with Old Dominion.

Dive Insight:

Old Dominion said it aimed to stay a competitive LTL in Q3 and byond with a focus on customer service and controlling costs. Gantt said Old Dominion has been striving for consistentcy to attract and retain clients. That philosophy of consistency of service was also one that Gantt and other executives said they stuck to even as the pandemic arrived in February, causing LTL competitors to drop price and offer capacity.

During Old Dominion's Q2 earnings call, the company said some LTL competitors picked up Old Dominion's business at the beginning of Q2 because of price sensitivity in the market, as April saw COVID-19 spread and shutdowns commence. But Old Dominion's revenue accelerated in June, and some customers began to come back from other LTL clients, Satterfield told analysts in June.

The formula appears to work. Old Dominion reported a 0.9% increase in revenue in Q3, YoY, and a 23% jump in net income in the same period. The company has also performed well throughout the pandemic. For the nine months ended Sept. 30, Old Dominion's revenue dropped 5.1%, but its net profit grew 2.4%, compared to the same period in 2019.

Gantt said during the Q3 call that executives found some costs to cut during the initial onset of COVID-19, and that included some labor costs. The company has yet to add back all employees it cut, Gantt said, but as the economy improves, Old Dominion sees the need, caused by growing demand, to get back to full staffing, especially as 2021 approaches.

Gantt said he expects 2021 to be a good economic year for Old Dominion, and he desires to capture higher LTL market share during the year. Gantt said in the news release that to gain market share, he expects Old Dominion to spend more on "three key elements of our capacity — people, equipment and service centers." The company put service-center expansion on hold during the pandemic.