NEW YORK — Greg Gantt, the CEO of Old Dominion Freight Lines, has led countless earnings calls and presentations to buy-side analysts in his career. On Wednesday, he did his final one.
At the UBS Industrial and Transportation conference, Gantt spoke before a small audience of money managers one last time before he moves into retirement at the end of this month. And it gave him an opportunity to review just how his company became the absolute north star of less-than-truckload trucking, with its operating ratios many points better than its competitors. Those companies often express, directly or indirectly, that they want to do as well as Old Dominion. Analysts sound like frustrated parents asking their son: why can’t you be like the boy down the street? Except in this case, they ask other LTL executives why they can’t be more like Old Dominion.
There are plenty of ways to measure the company’s success, but its operating ratio (OR) is the most stark. A mere six years ago in 2017, Old Dominion (NASDAQ: ODFL) posted a full-year OR of 82.9%. In 2012, the OR was 86.5%.
Last year, the full year OR was 70.6% and it dipped below 70% in the second and third quarters to just over 69%, an almost unheard-of performance.
Hopscotch your way through competitor earnings reports and you find that XPO (NYSE: XPO) had a full-year OR in 2022 of 82.7% and Saia (NASDAQ: SAIA) had 83.1%. In a recent interview with FreightWaves, John Luciani, head of LTL operations at privately held LTL carrier A. Duie Pyle, said the company’s OR was in the low 80s.
If LTL was a division in Major League Baseball with the standings determined by OR, Old Dominion would wrap up first place soon after Labor Day.
“It’s going to be hard to drive it a whole lot lower than where we are,” Gantt said of the two recent quarters with a sub-70 OR. But with an improved economy, a return to a sub-70 OR in 2024 or 2025 would not be impossible, he added.
In his fireside chat with UBS head transportation analyst Tom Wadewitz, the topic that dominated other sessions — the state of the market — was dealt with fairly rapidly.
Gantt echoed other speakers at the conference in saying the freight market has been “relatively flattish this year.” Old Dominion’s quarterly interim report was far worse than “flattish”; it showed a sharp drop in tonnage year-on-year in May, down 14.4%.
But after dispensing with that, the focus turned to how Old Dominion had gotten to this position. Gantt said the road for another LTL carrier to reach the sorts of financial benchmarks that Old Dominion has achieved would be a challenge, but not impossible.
“Others are trying to emulate your model,” Wadewitz said to Gantt, asking the outgoing CEO what “the most important elements of your service” were.
For the CEO of a company whose stock five years ago was just under $100 and on Thursday closed at about $316, Gantt answered the question without much overt boasting. (That tripling of Old Dominion stock is in stark contrast to the Dow Jones Transportation Index, which is up less than 30% in the last five years).
Gantt said the effort to improve the service offering at Old Dominion began about 20 years ago. “It was a long, very strenuous effort not just on my part but the entire team’s part to get us where we are,” he said.
“Can it be duplicated?” he said. “Yeah, it’s not rocket science.” The company’s LTL competitors “have got our playbook and they’re quoting the same things not just on service but also on capacity and other things. So we must be doing something right, because they’re certainly trying to duplicate what we do.”
Returning to the question of whether other LTL carriers can hit the sorts of OR and other benchmarks achieved by Old Dominion, Gantt asked again: “Can they do it?” His response to his own queston: “I don’t know. I don’t work there.”
The two biggest metrics in service have generally been on-time performance and a cargo claims ratio. “But it’s much deeper than that,” Gantt said.
“Everybody plays a role if you handle a customer shipment,” he said. “If you’re a dockworker or a driver, if you’re a customer service person, if you work in the office, if you answer the phone, if if you’re a dispatcher, whoever you are, if you’ve had any interaction with a customer or any interaction with the customer’s shipments, you have a role.”
Gantt said Old Dominion has “done a really good job of making everyone understand exactly what that role is.”
He also conceded that immediate buy-in isn’t guaranteed. “They don’t just accept that and go do it because Greg says to do it,” Gantt said.
The question Gantt said needed to be answered: what’s in it for me? “You have to explain that if we provide this type of service, we’re going to have more job security, we’re going to gain more shipments, we’re going to make more money and it drives the stock price,” Gantt said. The company’s 401(k) match does have a formula that ties back to the stock price, “so it’s on us as management to make sure they understand how they personally benefit financially.”
Gantt’s replacement as CEO will be Kevin “Marty” Freeman, who is currently chief operating officer and has been with Old Dominion for more than 30 years. Gantt will stay on as a member of the board of directors.
When the talk turned to operations, Gantt and Anthony Slater, vice president and treasurer who also was interviewed by Wadewitz, discussed several of the operating conditions that Freeman will inherit July 1.
— Old Dominion now has 255 service centers. Gantt said growth in capacity has been about eight to 10 new service centers per year for the last five to 10 years, but that is likely to slow to five to six per year. “It isn’t hard to see us getting to 300,” he said. Slater cautioned that the outright number of service centers is not the only metric that matters. “What we’re seeing a lot of is that we continue to grow scale,” Slater said, citing the closure of smaller service centers to be replaced by a much larger facility in the same market. Door capacity matters, Slater said. Old Dominion has been growing door capacity at a rate of 5% a year for the last 10 years, “but the service center count is much less than that.”
— Spend any time at an LTL presentation with someone, and when the talk turns to pricing, the word “discipline” won’t take too long to be heard. Gantt said that while Old Dominion’s yields — revenue per hundredweight — have been relatively flat the past several years, it has been coming off a high base, which made it difficult to grow further. Other LTL companies have caught up, he said. “There are several others that have been outpacing us in the last several years, so they realize that value of being more bullish on price,” Gantt said. Recent signs of weakening yields, he said, are “a little disappointing…to see (trucking companies) give it back in some cases. But by and large, I think they’re far more disciplined than they were some years ago, and that’s certainly a good thing for our industry.”
— Hiring drivers at the peak of the market was extremely difficult, Gantt said. “We were at the point where I wondered how we could ever cut loose another driver, because these guys are so valuable,” he said. The slowdown in business and the drop in demand for drivers has been mostly taken care of recently by attrition, which has “worked its magic,” he said.
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