Shipping Tonnage Declines Continue in August for Old Dominion Freight Line

In a recent update, Old Dominion Freight Line, a leading less-than-truckload carrier based in Thomasville, North Carolina, reported a 9.2% year-over-year tonnage decline in August. This decline was due to a 8.2% falloff in shipments and a 1.2% dip in weight per shipment.

The Purchasing Managers' Index (PMI), a key indicator of manufacturing activity, remained in contraction territory during August at 48.7. This marks the 32nd time in the past 34 months that the PMI signalled softness in the manufacturing complex. However, the PMI new orders subindex moved into expansion territory (51.4) after six straight months of decline.

Marty Freeman, the President and CEO of Old Dominion Freight Line, and his team are focusing on yield versus volume during the downturn. Excluding fuel surcharges, the yield was 4.7% higher in the third quarter, and the company's third-quarter outlook assumes similar revenue trends to those recorded in the second quarter with yields (excluding fuel) 4% to 4.5% higher y/year.

Old Dominion expects 80 to 120 basis points of sequential degradation to its operating ratio in the third quarter this year. The guidance implies a 75.6% OR (at the midpoint), 290 bps worse y/year.

The company flagged higher benefits costs, an annual wage increase, costs from excess network capacity, and recent losses on equipment sales as potential detractors.

Shares of Old Dominion Freight Line were off 4.7% in early trading on Thursday compared to the S&P 500. Interestingly, shares of LTL peer XPO showed a moderation in tonnage declines during August.

Looking forward, Old Dominion's year-over-year tonnage comparisons get easier in the fourth quarter (-8%), but the outlook for the U.S. industrial complex and consumer spending remains clouded by trade uncertainty. The PMI typically leads inflections in LTL volumes by approximately three months, so the upcoming PMI data will be closely watched.

Old Dominion did not reference its third-quarter margin outlook in its Thursday update. Despite the challenges, the company's two-year-stacked yield growth has averaged low-double-digit percentage increases over the last several quarters, offering a glimmer of hope in these uncertain times.

For every positive comment about new orders, there were 2.5 comments expressing concern about near-term demand, primarily driven by tariff costs and uncertainty. As the trade situation evolves, it will be interesting to see how Old Dominion and other logistics companies navigate these challenging times.