Old Dominion, XPO, & US Less-Than-Truckload Industry

Old Dominion, the leading US Less-Than-Truckload (LTL) provider, has seen its stock price compound at 18% per year for the past 34 years. This has fascinated us. On the surface, what might seem a simple, commoditized trucking company has beaten the market considerably over decades. ODFL earns 25%+ ROEs compared to small parcel companies such as Fedex at ~15-16% ROE. 

ODFLs high historical returns and the LTL long-term structural drivers in e-commerce and a more fragmented supply chain led us to explore this industry over the last two years. This roundup curates some of the work covered with details on how we covered each topic:

1. XPO Logistics & US LTL: Scaling via M&A: Why XPO decided to grow the business using a roll-up strategy and what challenges did such an approach entail
2. Choosing LTL Carriers: A Customer's Perspective: How global companies with complex supply chains decide which LTL carriers to contract
3. Old Dominion, XPO, Mainfreight & US LTL: A Broker's Perspective: Why brokers still exist in the LTL space and what are their relationships with LTL carriers and their end customers
4. US LTL: A Non-Asset-Based Network Structure: Why do some LTL companies decide to remain asset-light and contract local asset-based carriers to transport the goods on their behalf, along with the advantages and challenges such an approach entails
5. Mainfreight vs Old Dominion: US LTL Comparison: A head-to-head comparison between two LTL leaders who dominated their respective markets using different approaches to scaling their business
6. Mainfreight Culture and US Market Challenges: How Mainfreight dominated the New Zealand market and what challenges the company is facing now that it has entered the US market

History & Market Structure 

Truck carriers can be broken down into three categories:

• Parcel carriers, who handle small packages and freight that can be broken down into units less than approximately 150 pounds (68 kg).
• Full truckload carriers, who move entire semi-trailers. Semi-trailers are typically between 26 and 53 feet (7.92 and 16.15 m) and require a substantial amount of freight to make such transportation economical.
• Less-than-truckload (LTL) carriers, who fill the gap between parcel and full-truckload carriers, move several different shippers' shipments on pallets, with each shipment technically representing "less than a truckload". 

LTL shipping became popular after the deregulation of the shipping industries in the 1980's. Over 40 years later, the ~$50bn US LTL market remains fragmented, with the top three players, FedEx Freight, Old Dominion and XPO Logistics, owning ~20%, 12% and 10% of the market, respectively.

“At any given time, there were around 4500 LTL companies in the US” - Former Head of M&A and Data Science at XPO Logistics