Old Dominion: Upgrading Moat to Narrow on Robust Freight Density Advantage

We are upgrading our moat rating for Old Dominion to narrow from none. As with the rest of the truckload, or TL, and less than truckload, or LTL, companies we cover, we historically considered Old Dominion a no-moat company, despite its impressive execution and robust economic profit. This is because it is extremely difficult to build a sustainable competitive edge in LTL shipping, as superior processes that optimize line-haul and pickup and delivery efficiency are replicable by well-capitalized competitors over time. Also, for most carriers, scale economies have proven insufficient to produce economic profit over the full cycle. Along these lines, we previously believed that a handful of OD's competitors like XPO, Saia, and FedEx Freight would refine their execution, materially boost terminal capacity, and temper OD's ability to take market share. However, although those carriers have made progress, it's been much slower than expected and they haven't discernably disrupted OD's impressive performance.