What is LTL transport?

Old Dominion and Saia specialize in LTL (Less-than-Truckload Shipment). This mode of transport combines goods from several shippers into a single truckload, offering a cost-effective solution for moving a few pallets across the United States, for example. This mode of transport is opposed to Truckloard Shipment (LT), where one shipper fills a full trailer.

How is the LTL market structured in the US?

The LTL market is dominated by FedEx, one of the biggest players in the transport sector across all specialties, alongside United Parcel Service (UPS). Old Dominion is the second largest player, and the leading LTL pure-player. On the third step of the podium was, until a year ago, Yellow Corp. However, the company went bankrupt and its assets were bought up by several competitors. In second place is the other generalist, XPO, followed by Estes Express, R+L Carriers and South Eastern Freight, all privately-owned LTL specialists. There's also Canada's TFI International, which operates in both LTL and LT, ABF Freight, a subsidiary of the listed ArcBest group, and Saia.

The top 10 players in the LTL market. Five are listed (Fedex, Old Dominion, XPO, TFI International and Saia), but only two are LTL pure-players (Old Dominion and Saia). Source: Annual report 2023 Saia.

Size difference between Old Dominion and Saia

In terms of sales, Old Dominion is almost twice the size of Saia. In terms of market capitalization, Old Dominion is four times larger. There is therefore no comparison between the two companies on these criteria. However, if we look at market performance since covid, Saia dominates the debate.

In 2023, Saia has pulled out all the stops (source: MarketScreener)

Change of dimension for LTL transport following Covid-19

The Covid pandemic has changed many things. The year 2020 was difficult, as supply chains slowed down. The following two years were flourishing. The players experienced a peak in activity supported by a sharp upturn in consumption. Old Dominion and Saia took advantage of this to increase their margins and market share. But last year, things once again took a turn for the worse. Year-on-year comparisons were difficult to make, demand weakened and fuel prices were more volatile than usual. Added to this, several analysts have revised their expectations for the sector downwards over the next few years. In 2023, LTL shipments are expected to be between 20% and 25% lower than at the peak of the pandemic.

Analysts have lowered their expectations for Saia (source: MarketScreener)

And also on Old Dominion (source: MarketScreener)

This decline in activity, combined with recent lackluster results, explains why both stocks have underperformed the indices since the start of the year, as shown below.

Why is Saia growing faster?

Despite its rapid growth (average annual growth, CAGR, of 9.5% since 2014), Saia remains a small market player, playing the role of outsider. However, it is a highly profitable outsider, although its margins are still lower than Old Dominion's, which justifies the valuation gap between the two groups. This gap has narrowed in recent years, however, as Old Dominion has found it hard to justify a valuation of almost 40 times earnings with declining growth prospects.

Old Dominion and Saia are both high-quality companies: growth in all metrics, capital properly invested, management at the helm for many years (and shareholders in Old Dominion). Between the two, the choice will depend on the desired strategy: to bet on the outsider who has benefited from favorable momentum in recent quarters, or on Old Dominion, the largest pure-player in LTL transport, with very high margins and a substantial territorial coverage. The choice is yours.