The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part I, Item 1A for the year ended December 31, 2008. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Overview

The primary source of our operating revenue is truckload revenue, which we generate by transporting long-haul and regional freight for our customers and report within our Truckload segment. Generally, we are paid by the mile for our services. We also derive truckload revenue from fuel surcharges, loading and unloading activities, equipment detention and other ancillary services. The main factors that affect our truckload revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated, the number of miles we generate with our equipment and changes in fuel prices. We monitor our revenue production primarily through average truckload revenue, net of fuel surcharges, per tractor per week. We also analyze our average truckload revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our accessorial revenue and our other sources of operating revenue.

Our operating revenue also includes revenue reported within our Logistics segment, which consists of revenue from our internal brokerage and intermodal operations, both launched in 2005, and through our 45% interest in MWL, a third-party provider of logistics services to the transportation industry. Brokerage services involve arranging for another company to transport freight for our customers while we retain the billing, collection and customer management responsibilities. Intermodal services involve the transport of our trailers on railroad flatcars for a portion of a trip, with the balance of the trip using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our logistics revenue are the rate per mile and other charges we receive from our customers and the rates charged by third-party providers.

In addition to the factors discussed above, our operating revenue is also affected by, among other things, the United States economy, inventory levels, the level of truck and rail capacity in the transportation market and specific customer demand.

Our operating revenue decreased $89.6 million, or 19.2%, in the first nine months of 2009. This decrease was primarily due to fuel surcharge revenue decreasing by $70.3 million, or 64.3%, caused by significantly lower fuel prices in the first nine months of 2009. Our operating revenue, net of fuel surcharges, decreased $19.3 million, or 5.4%, compared with the first nine months of 2008. Truckload segment revenue, net of fuel surcharges, decreased 9.3% primarily due to a decrease in our average truckload revenue, net of fuel surcharges, per tractor per week of 10.5% in the first nine months of 2009. Our average miles per tractor decreased by 11.0% in the first nine months of 2009 due to the difficult freight environment and our reduced length of haul. This was partially offset by a 0.2% increase in our average truckload revenue, net of fuel surcharges, per total mile as a result of the positive impact that a reduced length of haul has on rates, negated by the effects of the difficult freight environment. The changes in our operating statistics are consistent with the continued development and growth of our regional temperature-controlled operations. By focusing on shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers' desires to stay closer to home. The concentration of a portion of our fleet in these markets is evident in a 9.5% reduction from the first nine months of 2008 in average length of haul to 781 miles. Our average fleet size increased by 40 tractors in the first nine months of 2009 from the same period of 2008. Logistics segment revenue, net of intermodal fuel surcharges, increased 11.3% compared with the first nine months of 2008. The increase in logistics revenue primarily resulted from our continued emphasis on expansion of and volume growth in each of our internal brokerage and intermodal services, partially offset by a decrease in revenue generated by MWL. Logistics revenue represented 21.0% of our operating revenue in the first nine months of 2009.

Our profitability on the expense side is impacted by variable costs of transporting freight for our customers, fixed costs and expenses containing both fixed and variable components. The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition and financing of long-term assets, such as revenue equipment and operating terminals. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices fluctuated dramatically at various times during the last several years, with the D.O.E. national average cost of fuel decreasing to $2.38 per gallon in the first nine months of 2009 from $4.10 per gallon in the first nine months of 2008. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. To help further reduce fuel expense, we have installed auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine. For our Logistics segment, our profitability on the expense side is impacted by the percentage of logistics revenue we pay to providers for the transportation services we arrange.

Our operating expenses as a percentage of operating revenue, or "operating ratio," was 94.4% in the first nine months of 2009 compared with 95.2% in the first nine months of 2008. Our earnings per diluted share decreased to $0.55 in the first nine months of 2009 from $0.56 in the same period of 2008. The decreased profitability in the first nine months of 2009 was primarily due to the decrease in revenue per tractor per week in our Truckload segment, partially offset by the improvement in our overall cost structure.

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At September 30, 2009, we had approximately $11.4 million of cash and cash equivalents and marketable securities, net of checks issued in excess of cash balances, $1.4 million of long-term debt, including current maturities, and $270.7 million in stockholders' equity. In the first nine months of 2009, net cash flows provided by operating activities were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $49.8 million. In 2008, cash flows were primarily used to pay down our long-term debt to strengthen our liquidity. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $25 million for the remainder of 2009. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents and marketable securities balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

We have been transforming our business strategy toward a more-diversified set of transportation service solutions, primarily regional temperature-controlled operations along with intermodal and brokerage services, to align our growth with customer trends. We believe that we are well-positioned during this difficult freight environment, as well as within an economic recovery, with this transformation of our services combined with our competitive position, cost control emphasis, modern fleet and strong balance sheet.

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes discussions of operating, truckload and logistics revenue, net of fuel surcharges, and net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads). We provide these additional disclosures because management believes these measures provide a more consistent basis for comparing results of operations from period to period. These financial measures in this report have not been determined in accordance with U.S. generally accepted accounting principles (GAAP). Pursuant to Item 10(e) of Regulation S-K, we have included the amounts necessary to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures, operating revenue and fuel and fuel taxes.

Results of Operations



The following table sets forth for the periods indicated certain operating
statistics regarding our revenue and operations:



                                                 Three Months               Nine Months
                                             Ended September 30,        Ended September 30,
                                              2009          2008         2009         2008

Truckload Segment:
Revenue (in thousands)                     $   100,266   $  137,042   $   297,893   $ 392,245
Average truckload revenue, net of fuel
surcharges, per total mile                 $     1.490   $    1.531   $     1.505   $   1.502
Average miles per tractor(1)                    24,039       27,736        72,955      81,977
Average truckload revenue, net of fuel
surcharges, per tractor per week(1)        $     2,725   $    3,231   $     2,816   $   3,146
Average tractors (1)                             2,410        2,322         2,393       2,353
Average miles per trip                             728          835           781         863
Total miles - company-employed drivers
(in thousands)                                  51,818       56,897       156,487     166,794
Total miles - independent contractors
(in thousands)                                   6,120        7,510        18,108      26,058

Logistics Segment:
Brokerage:
Marten Transport
Revenue (in thousands)                     $     9,796   $    6,751   $    25,117   $  18,365
Loads                                            5,416        3,027        13,568       8,475
MWL
Revenue (in thousands)                     $     8,371   $    9,151   $    23,363   $  29,248
Loads                                            4,775        4,458        13,594      14,601
Intermodal:
Revenue (in thousands)                     $    10,962   $   10,433   $    30,781   $  26,887
Loads                                            4,929        3,237        13,238       8,163
Average tractors                                    65           61            61          51

Comparison of Three Months Ended September 30, 2009 to Three Months Ended September 30, 2008

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

                                                                 Dollar          Percentage
                                                                 Change            Change
                                         Three Months         Three Months      Three Months
                                            Ended                 Ended             Ended
                                        September 30,         September 30,     September 30,
(Dollars in thousands)                 2009        2008       2009 vs. 2008     2009 vs. 2008
Operating revenue:
Truckload revenue, net of fuel
surcharge revenue                   $   86,324   $  98,600   $       (12,276 )          (12.5 )%
Truckload fuel surcharge revenue        13,942      38,442           (24,500 )          (63.7 )
Total Truckload revenue                100,266     137,042           (36,776 )          (26.8 )

Logistics revenue, net of
intermodal fuel surcharge
revenue(1)                              27,362      23,472             3,890             16.6
Intermodal fuel surcharge revenue        1,767       2,863            (1,096 )          (38.3 )
Total Logistics revenue                 29,129      26,335             2,794             10.6

Total operating revenue             $  129,395   $ 163,377   $       (33,982 )          (20.8 )%

Operating income:
Truckload                           $    5,047   $   8,619   $        (3,572 )          (41.4 )%
Logistics                                1,489       1,909              (420 )          (22.0 )
Total operating income              $    6,536   $  10,528   $        (3,992 )          (37.9 )%

Operating ratio(2):
Truckload                                 95.0 %      93.7 %                             (1.4 )%
Logistics                                 94.9        92.8                               (2.3 )
Consolidated operating ratio              94.9 %      93.6 %                             (1.4 )%

(2) Operating expenses as a percentage of operating revenue.

Our operating revenue decreased $34.0 million, or 20.8%, to $129.4 million in the 2009 period from $163.4 million in the 2008 period. This decrease was primarily due to fuel surcharge revenue decreasing to $15.7 million in the 2009 period from $41.3 million in the 2008 period, caused by significantly lower fuel prices in the 2009 period. Our operating revenue, net of fuel surcharges, decreased $8.4 million, or 6.9%, to $113.7 million in the 2009 period from $122.1 million in the 2008 period. The decrease in operating revenue, net of fuel surcharges, was due to a decrease in truckload revenue, net of fuel surcharges, partially offset by growth in logistics revenue.

Truckload segment revenue decreased $36.8 million, or 26.8%, to $100.3 million in the 2009 period from $137.0 million in the 2008 period. Truckload segment revenue, net of fuel surcharges, decreased 12.5% primarily due to a decrease in our average truckload revenue, net of fuel surcharges, per tractor per week of 15.7% in the 2009 period. Our average miles per tractor decreased by 13.3% in the 2009 period due to the difficult freight environment and our reduced length of haul. Our average truckload revenue, net of fuel surcharges, per total mile decreased 2.7% in the 2009 period due to the difficult freight environment, partially offset by the positive impact that a reduced length of haul has on rates. The changes in our operating statistics are consistent with the continued growth of our regional temperature-controlled operations. By focusing on

shorter lengths of haul in certain defined areas, we are addressing customer trends toward regional distribution to lower their transportation expense, furthering our own objectives of reducing fuel consumption per load, and matching some of our drivers' desires to stay closer to home. The concentration of a portion of our fleet in these markets is evident in a 12.8% reduction from the 2008 period in average length of haul to 728 miles. Our average fleet size increased by 88 tractors in the 2009 period from the 2008 period. The decrease in revenue per tractor per week primarily caused the decrease in profitability from the 2008 period.

Logistics segment revenue increased $2.8 million, or 10.6%, to $29.1 million in the 2009 period from $26.3 million in the 2008 period. Logistics segment revenue, net of intermodal fuel surcharges, increased 16.6%. The increase in logistics revenue primarily resulted from continued volume growth in each of our internal brokerage and intermodal services, partially offset by a decrease in revenue generated by MWL. Within the difficult freight environment, our operating ratio for the Logistics segment in the 2009 period increased by 2.3% from the 2008 period.

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

                                           Dollar         Percentage         Percentage of
                                           Change           Change         Operating Revenue
                                        Three Months     Three Months         Three Months
                                            Ended            Ended               Ended
                                        September 30,    September 30,       September 30,
(Dollars in thousands)                  2009 vs. 2008    2009 vs. 2008      2009        2008

Operating revenue                      $       (33,982 )         (20.8 )%    100.0 %     100.0 %
Operating expenses (income):
Salaries, wages and benefits                    (5,628 )         (14.1 )      26.5        24.4
Purchased transportation                            67             0.2        22.6        17.8
Fuel and fuel taxes                            (24,635 )         (48.1 )      20.5        31.3
Supplies and maintenance                            42             0.4         7.4         5.9
Depreciation                                       876             7.1        10.3         7.6
Operating taxes and licenses                         3             0.2         1.2         1.0
Insurance and claims                              (414 )          (7.2 )       4.1         3.5
Communications and utilities                       174            20.8         0.8         0.5
Gain on disposition of revenue
equipment                                         (143 )         (31.6 )      (0.5 )      (0.3 )
Other                                             (332 )         (11.5 )       2.0         1.8
Total operating expenses                       (29,990 )         (19.6 )      94.9        93.6
Operating income                                (3,992 )         (37.9 )       5.1         6.4
Other expenses (income):
Interest expense                                  (161 )         (82.1 )         -         0.1
Interest income and other                          (13 )         (34.2 )         -           -
                                                  (174 )        (110.1 )         -         0.1
Income before income taxes                      (3,818 )         (36.8 )       5.1         6.3
Less: Income before income taxes
attributable to noncontrolling
interest                                          (224 )         (70.7 )       0.1         0.2
Income before income taxes
attributable to Marten Transport,
Ltd.                                            (3,594 )         (35.8 )       5.0         6.2
Provision for income taxes                        (939 )         (23.9 )       2.3         2.4
Net income                             $        (2,655 )         (43.3 )%      2.7 %       3.8 %

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees' health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the ratio of company drivers to independent contractors, our efficiency, our experience with employees' health insurance claims, changes in health care premiums and other factors. The decrease in salaries, wages and benefits resulted primarily from an 8.9% decrease in the total miles driven by company drivers, a $1.4 million decrease in our self-insured medical claims, which decreased our employees' health insurance expense, a $1.4 million decrease in bonus compensation expensed for our non-driver employees, and a more broad implementation of our per diem pay structure for our drivers in the 2009 period.

Purchased transportation consists of payments to independent contractor providers of revenue equipment and to carriers for transportation services we arrange in connection with brokerage and intermodal activities. This category will vary depending upon the ratio of company drivers versus independent contractors, the amount of fuel surcharges passed through to independent contractors and the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers. Purchased transportation expense increased $67,000 in total, or 0.2%, in the 2009 period from the 2008 period. Payments to carriers for transportation services we arranged in our brokerage and intermodal operations increased $2.6 million to $22.0 million in the 2009 period from $19.4 million in the 2008 period. The portion of purchased transportation expense related to our independent contractors, including fuel surcharges, decreased $2.5 million in the 2009 period, primarily due to a decrease in the amount of fuel surcharges paid to the independent contractors. We expect that purchased transportation expense will increase as we continue to grow our Logistics segment.

Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $1.8 million, or 12.0%, to $13.2 million in the 2009 period from $15.1 million in the 2008 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads were $2.4 million in the 2009 period and $5.1 million in the 2008 period. Over the past year, we have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers' fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in our trailers' refrigeration units. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine. The decrease in net fuel expense was primarily due to a significant decrease in the D.O.E. national average cost of fuel to $2.60 per gallon in the 2009 period from $4.32 per gallon in the 2008 period, an 8.9% decrease in the total miles driven by our company-owned fleet and to the cost control measures stated above. Net fuel expense represented 13.9% of truckload and intermodal revenue, net of fuel surcharges, in the 2009 period, compared with 14.2% in the 2008 period.

Depreciation relates to owned tractors, trailers, auxiliary power units, communications units, terminal facilities and other assets. The increase in depreciation was primarily due to a continued increase in the cost of revenue equipment and an increase in the relative percentage of company-owned tractors to independent contractor-owned tractors in the 2009 period. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which will result in greater depreciation over the useful life.

Insurance and claims consist of the costs of insurance premiums and the accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers' compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The $414,000 decrease in insurance and claims in the 2009 period was primarily due to a decrease in the cost of self-insured auto liability accident claims. We are responsible for the first $1.0 million on each auto liability claim and also responsible for up to $1.0 million for 33% of each auto liability claim amount in excess of $1.0 million. We are responsible for the first $750,000 on each workers' compensation claim. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods depending on the frequency, severity and timing of claims and to adverse financial results if we incur large or numerous losses.

Gain on disposition of revenue equipment increased to $596,000 in the 2009 period from $453,000 in the 2008 period as a result of an increase in the number of trailers sold, partially offset by a decrease in the market value for used revenue equipment. Future gains or losses on disposition of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control. We do not expect our gain on disposition to improve in the near future as we believe that there are few buyers with adequate financing in comparison with available inventory, and the expectation of additional trucking company failures is likely to keep used truck inventories high.

As a result of the foregoing factors, our operating expenses as a percentage of operating revenue, or "operating ratio," was 94.9% in the 2009 period compared with 93.6% in the 2008 period, with the operating ratio for our Truckload segment increasing to 95.0% from 93.7% in the 2008 period and the operating ratio for our Logistics segment increasing to 94.9% from 92.8% in the 2008 period.

Interest expense primarily consists of interest on our senior unsecured notes and unsecured committed credit facility. The decrease in interest expense of $161,000, or 82.1%, in the 2009 period from the 2008 period was primarily the result of lower average debt balances outstanding.

Our effective income tax rate increased to 46.2% in the 2009 period from 39.1% in the 2008 period, primarily because of the nondeductible effect of a per diem pay structure for our drivers adopted in the first quarter of 2008 which was more broadly implemented in the third quarter of 2009.

As a result of the factors described above, net income decreased to $3.5 million . . .