ODFL: Keep on trucking!

Recently I came across Old Dominion Freight Line, Inc. (ODFL). I as rather surprised that a trucking company could be such a good long term investment, 21.2% 25 year average CAGR

https://invest.kleinnet.com/bmw1/stats25/ODFL.html

Today SA has the following note:

Retailers ask where are all the trucks?

Jan. 26, 2018 9:03 AM ET|By: Clark Schultz, SA News Editor
While retail sales are on an uptrend an unexpected obstacle has emerged that could threaten inventory and distribution in the form of a shortage of trucking in the U.S.

The Wall Street Journal’s Jennifer Smith observes that Constellation Brands (NYSE:STZ), Campbell Soup (CPB and J.M. Smucker (NYSE:SJM) have all pointed to rising freight costs amid tight truck supply in their recent earnings conference calls. There are also many anecdotal reports of stores lacking some products due to trucking delays.

https://seekingalpha.com/news/3325704-retailers-ask-trucks

With the economy picking up steam, with more money in taxpayers’ pockets, the shortage of transport can only increase raising rates, revenue and earnings for truckers.

Of note is that Old Dominion Freight Line is in the “less than truckload” business as opposed to long haul. They serve retail doing home deliveries.

Less than truckload shipping

https://en.wikipedia.org/wiki/Less_than_truckload_shipping

ODFL has been making new all time highs. I started a position earlier this month.

Denny Schlesinger

10 Likes

With the new increased regulations on the trucking industry, especially limiting the amount of hours per day a trucker is allowed to drive, this could actually increase trucking costs and tighten the industry even more.

(Anecdotal Evidence) Father-in-law is head Diesel mechanic for trucking company. They cannot find enough drivers because they cannot make decent money for the hours worked so they are switching industries. With the new electronic tracking systems that must be installed, DOT has the ability to actually turn off the truck they are monitoring if it drives over 10 hours. This includes ALL breaks, lunch and/or dinners.

One actual issue regarding the new rules. A trucker earns $400 per load of sand(one load a day), they leave home base, drive 3 hours, sleep for 4-5 hours while waiting in line to unload sand and then drive home. The trucker was 30 minutes from home base but had to pull over on the side of the road, wait 8 hours and then continue on home. Needless to say, the trucker was very unpleased with the situation and quit the next month. Not enough money in the load and the customer was to far away.

Just something to ponder. I am wondering if the money will be made with the logistics companies vs the actual trucking company.

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I work for a 3PL company, and Old Dominion is one our favorite “go to carriers” Their pricing is good, and from what I understand from our logistics analysts - their customer service is outstanding.

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Just something to ponder. I am wondering if the money will be made with the logistics companies vs the actual trucking company.

I see it this way: people buy stuff and it has to be delivered. In the end the customer gets the bill. If drivers quit, the labor shortage pushes wages up. If regulations reduce working hours, the labor shortage pushes wages up. Higher wages push rates up. The customer pays.

Trucking is a commodity market and the low cost producer is the one that makes the most money. When comparing logistics vs. the actual trucking, more than likely logistics is the more profitable business. Large truckers like Old Dominion Freight Line (ODFL) and XPO Logistics (XPO) do a bit of both.

Trucking is a highly fragmented industry and there is money to be made in consolidation which XPO has been doing. I sold my XPO when they acquired a French firm. French labor unions are a real menace.

Denny Schlesinger

3 Likes

DEFINITION
3PL (third-party logistics)
Posted by: Margaret Rouse
WhatIs.com

A 3PL (third-party logistics) is a provider of outsourced logistics services. Logistic services encompass anything that involves management of the way resources are moved to the areas where they are required. The term comes from the military.

http://searcherp.techtarget.com/definition/3PL-third-party-l…

Thanks!

Denny Schlesinger

It was superb logistics that allowed Patton to sweep through Europe in WWII. To keep fighting you need food, fuel, ammunition, weapons, medical supplies…

Logistics trivia: Jerrycans (German cans), were smaller and easier to handle than the American cans so the US army adopted them.

https://en.wikipedia.org/wiki/Jerrycan#American_adaptation

1 Like

With the new increased regulations on the trucking industry, especially limiting the amount of hours per day a trucker is allowed to drive, this could actually increase trucking costs and tighten the industry even more.

My input is also anecdotal, but this should favor the larger companies by the simple fact it is destroying smaller outfits who either can’t or chose not to buy the systems that are now required. Just heard it the other day from a plant manager in my business.

We can still find local haulers on a contract basis and they are reasonable, though the cost has increased quite a bit. However, during peak times that require brokered trucking, the cost skyrockets.

The regulations are driving costs up and pushing out smaller operations which will benefit carriers like ODFL and XPO.

A.J.

2 Likes

The regulations are driving costs up and pushing out smaller operations which will benefit carriers like ODFL and XPO.

A.J.

Agree! Trucking is a fragmented industry because the barriers to entry are low (have truck, will travel) but regulation is raising them. XPO’s business model is one of acquisition and consolidation which can be very beneficial for shareholders.

Old Dominion Freight Line made a new all time high today, $149.92.

Denny Schlesinger

increased regulations on the trucking industry, especially limiting the amount of hours per day a trucker is allowed to drive

Autonomous Truck Driving is coming sooner than you might think. What impact will that have on the trucking industry?

Alex

Autonomous Truck Driving is coming sooner than you might think. What impact will that have on the trucking industry?

My thoughts on Autonomous Trucks would be long haul mostly in wide open spaces (AZ, WY, NV, etc…) with consistent warm weather for the next 5 years or so. Reduce variables, increase success.

Brian

1 Like

Autonomous Truck Driving is coming sooner than you might think. What impact will that have on the trucking industry?

Alex

I don’t know. I don’t think is will be “coming sooner than you might think.” Some of it is here already as in aviation and drones but they still have pilots on board airplanes and remote controllers for drones. I think Brian is right in that “long haul mostly in wide open spaces (AZ, WY, NV, etc…)” is likely a nearer target than urban LTL trucking. Economies of scale in long haul favor investing in the technology.

Also, I don’t think it is relevant to my investing horizon. Nor is it for someone as agile in and out as Saul.

Denny Schlesinger

Thanks Brian for providing half the answer!