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Morningstar | Old Dominion's Growth Trajectory Will Slow in 2019, but Execution to Remain in the Fast Lane

Old Dominion ranks among the top 10 domestic less-than-truckload, or LTL, carriers by revenue and is by far the industry leader in terms of execution and service quality. Throughout the 2008-09 freight recession, the company kept its head above water via impressive rate discipline and steadfast investment in network capacity. While other LTL carriers slashed rates dramatically, Old Dominion held firm, keeping core revenue per hundredweight mostly flat. Moreover, the company preserved its slice of the market by maintaining service levels (on-time service has exceeded 98% on average since 2008) despite pressure to cut costs--this has translated into a stellar reputation among shippers. Overall, strong operational execution has driven industry-leading profitability and robust market share gains (from less capable carriers), and we expect that dynamic to persist. For more than a decade, Old Dominion has been broadening its reach beyond national, long-haul LTL services into the regional market. Like the national LTL market, the regional niche is quite competitive because small regional players' primary weapon is price. Nonetheless, Old Dominion has been refining this service offering since the late 1990s, and it is consistently grabbing share from providers with inferior geographic coverage. We think the firm has managed to gradually take business from many large competitors as well, thanks to its best-in-class network service. Additionally, the regional market enjoys favorable secular themes, including manufacturers' and retailers' focus on driving down supply chain costs and locating distribution close to end customers.2018 proved to be an unusually favorable year for LTL truckers' tonnage and pricing, with help from spillover freight from the much larger full-truckload shipping market, which faced an unprecedented capacity crunch due in part to widespread electronic logging device adoption (mandatory as of December 2017). Tight truckload supply conditions eased by year-end 2018 and macroeconomic growth is moderating, but we expect Old Dominion to continue outperforming its LTL peers by way of share gains and related network-density improvement.