Old Dominion Yield Jumps 13% in August as Diesel Climbs 46%
LTL carrier's revenue per hundredweight accelerated from July, but tonnage stayed slightly negative. Fuel surcharge step-ups padded margins as diesel spiked 10% month-over-month.
Old Dominion Freight Line's revenue per hundredweight rose roughly 13% year-over-year in August with fuel surcharges included, up from 9.3% growth in July. Diesel prices climbed 46% y/y in August and 10% sequentially from July, triggering step-function fuel surcharge increases that typically improve LTL margins.
Why did Old Dominion's yield growth accelerate in August?
The Thomasville, North Carolina-based carrier's yield growth accelerated both with and without fuel surcharges. Excluding fuel, August yield was up roughly 5.5% y/y compared with 4.2% in July. Daily revenue increased 12.4% y/y in August, an improvement from July's 8.2% y/y growth. Higher shipment weights were a modest drag on yield metrics in both months.
"Old Dominion produced solid revenue growth for July and August, with underlying demand trends remaining relatively consistent as the quarter has progressed," said Marty Freeman, president and CEO. "In addition, the strength and consistency of our industry-leading service continue to support the ongoing improvement in our LTL revenue per hundredweight."
What happened to tonnage?
Tonnage declined 0.9% y/y in August, in line with July's 1% y/y decline. On a two-year-stacked comparison, tonnage was off 10.1% in August, slightly worse than the 9.3% decline in July. August's tonnage was formed by a 2.4% decline in daily shipments, partially offset by a 1.7% increase in weight per shipment.
Shipment weights are moving higher as the industrial economy improves. The Institute for Supply Management's Manufacturing PMI logged an eighth straight month in positive territory in August with a 54.6 reading, 60 basis points light of expectations and 1 percentage point below the four-year high recorded in July. The new orders subindex fell 3 points to 53.7. Carrier tonnage trends typically lag the index by three months.
How does fuel pricing affect LTL margins?
Less-than-truckload fuel surcharge programs include a step function as diesel prices rise, typically resulting in better margins. Diesel was up 31% y/y in July, then jumped to 46% y/y in August. The sequential 10% increase from July to August triggered additional surcharge steps that flow through to revenue per hundredweight faster than the underlying cost increase hits the P&L.
For small fleets running spot truckload, diesel spikes eat margin immediately. For LTL carriers with contractual fuel surcharge programs, the same spike can temporarily pad margins until the next contract cycle resets the base rate. Old Dominion's August numbers show that dynamic in action: yield growth with fuel surcharges (13%) ran 750 basis points ahead of yield growth without fuel (5.5%).
What do August numbers mean for Q3 guidance?
Old Dominion's quarter-to-date results support the higher end of management's third-quarter guidance. Revenue is trending to a 10% y/y increase, or $1.55 billion, in line with the current consensus estimate. Yield growth was expected to moderate to a range of plus-4% to plus-4.5% y/y, but August appears to have exceeded that.
Third-quarter operating ratio guidance calls for 150 to 200 basis points of sequential deterioration from the 70.1% second-quarter unadjusted OR, which included a real estate gain. The implied 71.9% guide would be 240 basis points better y/y. The company normally outgrows the market by 9 to 10 percentage points in an upcycle.
How did the market react?
Shares of publicly traded LTLs gapped lower following the Tuesday ISM Manufacturing PMI update, closing the day down between 4% and 7%. The S&P 500 was off just 0.7%. The overall PMI reading was a little worse than expected, with the new orders number drawing attention from investors who track carrier tonnage trends three months forward.
What this means for small fleets
Old Dominion's August report signals that LTL carriers are successfully prioritizing pricing discipline and profitability over volume despite only modest demand trends. For small truckload fleets competing in the same freight lanes, the takeaway is twofold: LTL pricing power remains strong enough to push through 5.5% base-rate gains even with tonnage slightly negative, and diesel volatility is creating a margin wedge between carriers with contractual fuel programs and those running spot.
If you're a 5- to 20-truck fleet running regional lanes that overlap with LTL networks, watch how shippers respond to LTL rate increases in Q4 contract negotiations. Freight that gets priced out of LTL networks typically moves to truckload spot or dedicated lanes. The three-month lag between the August PMI new-orders dip and carrier tonnage trends puts the potential volume shift in late November or early December, right as holiday freight tapers off.
