SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON D.C. 20549
 
                       SCHEDULE 14A INFORMATION
 
      Proxy Statement Pursuant to Section 14(a) of the Securities
                         Exchange Act of 1934
 
 (X)   Filed by the Registrant
 ( )   Filed by a Party other than the Registrant
                                                                           
 Check the appropriate box:
 ( )   Preliminary Proxy Statement
 ( )   Confidential, for Use of the Commission Only (as permitted by Rule
       14a-b(e)(2))
 (X)   Definitive Proxy Statement
 ( )   Definitive Additional Materials
 ( )   Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
 
 
                         Kenan Transport Company
 -------------------------------------------------------------------------
            (Name of Registrant as Specified In Its Charter)
 
 
 -------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement If Other Than Registrant)
 
 
 Payment of Filing Fee (Check the appropriate box):
 (X)   No fee required.
 ( )   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 
       and 0-11.
       (1)   Title of each class of securities to which transaction
             applies:
       (2)   Aggregate number of securities to which transaction 
             applies:
       (3)   Per unit price or other underlying value of transaction
             computed pursuant to Exchange Act Rule 0-11 (set forth the
             amount on which the filing fee is calculated and state how it
             was determined):
       (4)   Proposed maximum aggregate value of transaction:
       (5)   Total fee paid:
 
 
 ( )   Fee previously paid with preliminary materials
 ( )   Check box if any part of the fee is offset as provided by Exchange
       Act Rule 0-11(a)(2) and identify the filing for which the offsetting
       fee was paid previously. Identify the previous filing by
       registration statement number, or the Form or Schedule and the date
       of its filing.
       1)    Amount Previously Paid:
       2)    Form, Schedule or Registration Statement No.:
       3)    Filing Party:
       4)    Date Filed:
 <PAGE>
 <PAGE>
 
                       KENAN TRANSPORT COMPANY
                     CHAPEL HILL, NORTH CAROLINA
               ----------------------------------------
               Notice of Annual Meeting of Shareholders
 
                            May 3, 1999
               ----------------------------------------
 
      The Annual Meeting of the Shareholders of KENAN TRANSPORT COMPANY, a
 North Carolina corporation, will be held at The Kenan Center, Bowles Drive
 (adjacent to the Dean Smith Student Activities Center), Chapel Hill, North
 Carolina, at 10:00 A.M. local time on Monday, May 3, 1999, for the
 following purposes:
 
      (1) To elect a Board of Directors for the ensuing year;
      (2) To transact such other business as may properly come before
          the meeting or any adjournment thereof.
 
    It is requested that you read carefully this Notice of Annual Meeting
 and the accompanying Proxy Statement for information on the matters to be
 considered and acted upon.
 
    The Board of Directors of the Company has fixed the close of business
 on March 1, 1999 as the record date for the determination of shareholders
 entitled to notice of and to vote at the meeting.
 
    Information relating to the Company's activities and operations during
 the fiscal year ended December 31, 1998 is contained in the Company's
 Annual Report, which is enclosed.
 
    Your Proxy is enclosed.  You are cordially invited to attend the
 meeting in person, but if you do not expect to attend, please date and
 sign your Proxy and return it promptly in the enclosed envelope.
 
 
 
 WILLIAM L. BOONE
 Secretary
 
 March 30, 1999
 Chapel Hill, North Carolina
 <PAGE>
 <PAGE>
  
                         KENAN TRANSPORT COMPANY
                             P.O. Box 2729
                  Chapel Hill, North Carolina  27515-2729
                  ---------------------------------------
                            PROXY STATEMENT
                  ---------------------------------------
                          GENERAL INFORMATION
 
    This Proxy Statement is furnished in connection with the solicitation
 of proxies by the Board of Directors of KENAN TRANSPORT COMPANY (the
 "Company") for the Annual Meeting of the Shareholders to be held on May 3,
 1999 at 10:00 A.M. local time at The Kenan Center, Bowles Drive (adjacent
 to the Dean Smith Student Activities Center), Chapel Hill, North Carolina. 
 This Proxy Statement and the accompanying Proxy were mailed on or about
 March 30, 1999.
 
    Holders of record of shares of the Common Stock of the Company at the
 close of business on March 1, 1999 will be entitled to vote at the Annual
 Meeting of Shareholders.
 
    Shareholders who execute and return proxies will retain the right to
 revoke them at any time before they are voted. When executed and not so
 revoked, proxies will be voted in accordance therewith.
 
    The solicitation of proxies by the Board of Directors will be by mail. 
 The total expense of such solicitation will be borne by the Company and
 will include reimbursement to brokerage firms and others for their
 expenses in forwarding solicitation material regarding the meeting to
 beneficial owners.  Further solicitation of proxies may be made by
 telephone or oral communication with some shareholders of the Company
 following the original solicitation. All such further solicitation will be
 made by regular employees of the Company who will not be additionally
 compensated therefor, or by the Company's transfer agent, and the cost
 will be borne by the Company.
 
 
                 OUTSTANDING SECURITIES AND VOTING RIGHTS
                                     
    Only shareholders of record at the close of business on March 1, 1999
 will be entitled to notice of and to vote at the Annual Meeting of
 Shareholders.  On such date, the number of outstanding shares of Common
 Stock, no par value, was 2,421,562.  Each share of Common Stock is
 entitled to one vote.
 
    The enclosed Proxy is designed to permit each shareholder of record at
 the close of business on the record date of March 1, 1999, to vote for the
 election of directors and on other matters coming before the meeting.  Two
 directors of the Company,  Thomas S. Kenan, III and Lee P. Shaffer, have
 been designated as proxies to vote shares in accordance with the
 instructions of the Proxy.
      
 
 
       <PAGE>
 <PAGE>
          
           SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 
                                     
                                     
    Unless otherwise noted, the following table shows the ownership on
 March 1, 1999, of the Company's Common Stock by each person who owned of
 record, or was known by the Company to own beneficially, more than five
 percent (5%) of such stock:   
                                       Shares Owned    
 Name and Address                      Beneficially      Percent 
 ----------------------------      -------------------  ---------
 
 Frank H. Kenan 1988 Trust (1)          789,360           32.6%
 100 Europa Drive, Suite 525
 Chapel Hill, NC  27514                 
 
 1965 Trust established by
   Sarah Graham Kenan (2)               300,000           12.4%    
 9 West 57th Street
 New York, NY 10019  
                                                                           
 Royce & Associates, Inc. (3)           209,830            8.7% 
 1414 Avenue of Americas
 New York, NY  10019                    
 
 Franklin Resources, Inc. (3)           168,550            7.0%
 777 Mariners Island Blvd.
 San Mateo, CA 94403
 
 Lee P. Shaffer                         201,085            8.2%
 P.O. Box 2729
 Chapel Hill, NC  27515
 
 
 (1)   There are six trustees of the Frank H. Kenan 1988 Trust, each of
 whom may be deemed to own beneficially the shares of common stock held
 thereby. The trustees are Elizabeth P. Kenan, Thomas S. Kenan, III, Owen
 G. Kenan, Elizabeth Kenan Howell, Annice Hawkins Kenan and Braxton Schell.
 
 (2)   There are four trustees of the 1965 Trust established by Sarah
 Graham Kenan, each of whom may be deemed to own beneficially the shares of
 common stock held thereby. The trustees are Thomas S. Kenan, III, Owen G.
 Kenan, Elizabeth Kenan Howell and Morgan Guaranty Trust Company of New
 York.
         
 (3)   Ownership as of December 31, 1998 as reported to the Company on
 Schedule 13G.
 
       -----------------------
 
 
       <PAGE>
 <PAGE>
                     SECURITY OWNERSHIP OF MANAGEMENT
 
      The following table sets forth information with respect to the
 beneficial ownership of the Company's Common Stock, as of March 1, 1999,
 by its directors, nominees for election as directors, named executive
 officers and by all directors and executive officers as a group:
 
 
      Name of              Officer, Director       Shares Owned
  Beneficial Owner          and/or Nominee         Beneficially    Percent
 --------------------      -------------------  ------------------ -------
 Lee P. Shaffer            Officer, Director      201,085 (3)         8.2%
 Owen G. Kenan             Officer, Director       32,820 (1)(2)      1.4%
 Thomas S. Kenan, III      Officer, Director       41,000 (1)         1.7%
 William L. Boone          Officer                 55,329 (3)         2.3%
 L. Avery Corning          Officer                  7,407 (3)           *
 William P. Prevost        Officer                  6,200 (3)           * 
 James H. Reid             Officer                  6,200 (3)           *
 William C. Friday         Director                 1,100               * 
 William O. McCoy          Director                     0               *
 Paul J. Rizzo             Director                     0               *
 Braxton Schell            Director                 1,000 (4)           * 
 Kenneth G. Younger        Director                   500               *
 
 All Directors and Executive Officers
 as a Group (15 Persons)                          381,168 (1)(3)     15.3%
 
 * Less than 1%.
 
 
 (1)   The shares shown as beneficially owned by Owen G. Kenan, Thomas S.
 Kenan, III and all directors and executive officers as a group do not
 include 1,089,360 shares owned by trusts of which Owen G. Kenan and Thomas
 S. Kenan, III are beneficiaries as well as trustees, and 18,900 shares
 held by The Kenan Family Foundation, a nonprofit corporation of which each
 is a director. When these amounts (1,089,360 and 18,900) are added to the
 shares listed in the table above for each of the following individuals and
 directors and executive officers as a group, the aggregate beneficial
 ownership of stock and percentage of outstanding stock owned by each
 person or group is as follows: Owen G. Kenan - 1,141,080 or 47.1%; Thomas
 S. Kenan, III - 1,149,260 or 47.4%; and all directors and executive
 officers as a group - 1,489,428 or 59.9%.
    
 (2)   Includes 1,380 shares owned by Owen G. Kenan's wife, 10,950 shares
 held by his wife as custodian for their children under the Uniform Gifts
 to Minors Act and 11,490 shares held by a trust of which Owen G. Kenan
 serves as trustee.            
 
 (3)   Includes 28,180 shares for Mr. Shaffer; 11,460 shares for Mr. Boone, 
 4,700 shares for Mr. Corning, 4,700 shares for Mr. Prevost, 4,700  shares
 for Mr. Reid and 65,780 shares for all directors and executive officers as
 a group which may be acquired within 60 days of March 1, 1999 pursuant to
 options granted under the Company's 1998 Long-Term Incentive Plan.
 
 (4)   Does not include 789,360 shares held by a trust of which Mr. Schell
 serves as trustee.
 
       -----------------------<PAGE>
 <PAGE>
 
          SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
    Under federal securities laws, the Company's directors, its executive
 officers, and any persons holding more than 10 percent of the Company's
 stock are required to report their ownership of the Company's stock, as
 well as any changes in that ownership, to the Securities and Exchange
 Commission.  Specific due dates for these reports have been established,
 and the Company is required to report in this Proxy Statement any failure
 during fiscal year 1998 to file such reports in a timely fashion.  All of
 these filing requirements were satisfied by its directors, officers and 10
 percent shareholders.
 
 
                           ELECTION OF DIRECTORS
                                     
    At the meeting, the shareholders will elect the Company's directors. 
 The Board of Directors has set the number of directors to be elected at
 the 1999 Annual Meeting at eight. All members of the present Board are
 nominees for election to hold office until the next annual meeting of the
 shareholders and until their successors have been duly elected.  A
 plurality of the votes cast is required to elect each director.  Broker
 nonvotes and abstentions will not affect the election results if a quorum
 is present.
    
    If the enclosed Proxy is duly executed and received in time for the
 meeting and if no contrary specifications are made as provided therein, it
 is the intention of the persons named therein to vote the shares
 represented thereby for the eight persons nominated for election as
 directors of the Company.  If any nominee should refuse or be unable to
 serve, the Proxy will be voted for such persons as shall be designated by
 the Board of Directors to replace any such nominee.  The Board of
 Directors presently has no knowledge that any of the nominees will refuse
 or be unable to serve.
 
 
 <PAGE>
 <PAGE>
 
                  Information About Nominees for Director
 
    The following information is furnished with respect to nominees:
 
                                       Principal Occupation; 
                                Business Experience Past Five Years;
   Name; Period Served               Other Directorships and Age  
 ------------------------   ---------------------------------------------- 
 Thomas S. Kenan, III (1)   Chairman of the Board of Directors since July 
   Director Since 1964      1996; President, The Westfield Company,
                            Durham, NC; Trustee, The Duke Endowment,
                            Charlotte, NC; Trustee, The William R. Kenan
                            Jr. Charitable Trust, Chapel Hill, NC;          
                            Director, Flagler System, Palm Beach, FL.
                            Age 61.
 
 Owen G. Kenan (1)          Vice Chairman of the Board of Directors since   
   Director Since 1978      July 1996; President and Chief Executive
                            Officer, Kenan Enterprises, Inc.; President
                            and Chief Executive Officer, Kenan Oil
                            Company, Inc., Chapel Hill, NC (1987-1997);
                            Director, Central Carolina Bank & Trust
                            Company; Director and Vice Chairman, Flagler
                            System, Palm Beach, FL. Age 55.
 
 William C. Friday          President, The William R. Kenan Jr. Fund,
   Director Since 1978      Chapel Hill, NC. Age 78.
 
 William O. McCoy           Partner, Franklin Street Partners, Chapel
   Director Since 1996      Hill, NC; Vice President-Finance, The
                            University of North Carolina, General
                            Administration (1995-1998); Vice Chairman,
                            BellSouth Corporation-Telecommunications
                            (1984-1994); Director, Carolina Power & Light
                            Company; Director, The Liberty Corporation;
                            Director, The Weeks Corporation; Director,
                            Fidelity Investments. Age 65.
 
 Paul J. Rizzo              Chairman, Franklin Street Partners, Chapel 
   Director Since 1996      Hill, NC; Vice Chairman, IBM Corporation
                            (1993-1994); Director, Morgan Stanley;
                            Director, Ryder Systems; Director, McGraw-Hill
                            Companies, Inc.; Director, Johnson & Johnson.
                            Age 71.
 
 Braxton Schell             Attorney-at-Law, Schell Bray Aycock Abel
   Director Since 1986      & Livingston P.L.L.C., Greensboro, NC;          
                            Director, Flagler System, Palm Beach, FL.
                            Age 75.
 <PAGE>
 <PAGE>
 
           Information About Nominees for Director - continued
 
 
                                       Principal Occupation; 
                                Business Experience Past Five Years;
   Name; Period Served               Other Directorships and Age  
 ------------------------   ---------------------------------------------- 
 Lee P. Shaffer (2)         President of the Company since 1975; Chief
   Director Since 1967      Executive Officer of the Company since July
                            1996; Chief Operating Officer of the Company
                            (1975-1996). Age 60.
 
 Kenneth G. Younger         Retired; Chairman and Chief Executive Officer,
   Director Since 1996      Carolina Freight Corporation (1977-1990 and
                            1993-1994); Director, Trailer-Bridge, Inc.
                            Age 73.  
 
 
 (1)   Thomas S. Kenan, III and Owen G. Kenan are brothers.
 (2)   Lee P. Shaffer is the father of Lee P. Shaffer, III, the Vice 
 President of Operations Services, an executive officer of the Company.
 
      -----------------------
 
 
                   Board of Directors and Board Committees
                                     
    The Board of Directors met five times during 1998.  Each director
 attended all meetings of the Board and of each Committee of which such
 director was a member, except Owen G. Kenan who was absent from two Board
 meetings.  In addition, the Board took action by unanimous written consent
 five times during 1998.  The Board of Directors of the Company has an
 Audit Committee, a Compensation Committee and an Executive Committee.  The
 Board of Directors has no standing nominating committee. 
 
    The members of the Audit Committee are William C. Friday, William O.
 McCoy and Braxton Schell.  The purpose of the Committee is to assist the
 Board of Directors in assuring that the Company's financial reports are
 fairly presented and accurate, that there is an adequate system of
 internal accounting controls and that the auditors are independent and
 effectively performing their duties.  The Audit Committee met twice during
 1998.
 
    The members of the Compensation Committee are William O. McCoy, Paul J.
 Rizzo and Kenneth G. Younger.  Messrs. McCoy and Rizzo were appointed to
 the Committee on January 29, 1998.  They replaced Messrs. Friday and
 Schell who had served as members of the Compensation Committee, along with
 Mr. Younger, during fiscal year 1997.  The Committee recommends
 compensation for executive officers of the Company.  The Committee met
 three times during 1998.
 <PAGE>
 <PAGE>
 
    The members of the Executive Committee are Owen G. Kenan, Thomas S.
 Kenan, III and Lee P. Shaffer.  The Committee may exercise all the
 authority of the Board of Directors in the management and affairs of the
 Company, except that the Committee may not authorize distributions;
 approve  or propose to shareholders action that North Carolina law
 requires be approved by shareholders; fill vacancies on the Board of
 Directors or on any committee; amend the Articles of Incorporation; adopt,
 amend, or repeal bylaws; approve a plan of merger not requiring
 shareholder approval; authorize or approve reacquisition of shares of
 capital stock of the Company, except according to a formula or method
 prescribed by the Board of Directors; or authorize or approve the issuance
 or sale or contract for sale of shares, or determine the designation and
 relative rights, preferences, and limitations of a class or series of
 shares.  The Executive Committee took action by unanimous written consent
 four times during 1998. 
 
 
                         Compensation of Directors
 
    During 1998, Thomas S. Kenan, III was paid an annual retainer of
 $52,000 for his services as Chairman of the Board.  Each outside director
 is paid an annual retainer of $6,000 plus an additional $1,500 for each
 meeting of the Board or meeting of a Board Committee that he attends.
 
 
 
                             Certain Transactions
 
    The Company leases its corporate offices in University Square at 143
 West Franklin Street in Chapel Hill, North Carolina from the Frank H.
 Kenan 1988 Trust under a five-year lease agreement that became effective
 January 1, 1995.  In 1998 the Company paid $306,516 in base lease payments
 to the Frank H. Kenan 1988 Trust, the present owner of University Square.
 Based upon studies performed by the Company of rental rates for comparable
 facilities, the Company is satisfied that the rent paid does not exceed
 market rates in the area.
 
    Braxton Schell is a partner in Schell Bray Aycock Abel & Livingston,
 P.L.L.C., a law firm that provides legal services to the Company. In 1998,
 the Company paid $203,362 in legal fees to this firm.
 
 
                   EXECUTIVE COMPENSATION AND RELATED MATTERS
 
    The following table sets forth the annual compensation paid or accrued
 by the Company to or for the account of the Chief Executive Officer and
 the next four most highly compensated executive officers for fiscal 1998
 ("Named Executive Officers") of the Company for the years ended December
 31, 1998, 1997 and 1996.<PAGE>
<PAGE>

                                  Summary Compensation Table

<TABLE>
<CAPTION>
                                                              Long-Term
                                                          Compensation Awards
                                        Annual          -----------------------
                                     Compensation       Restricted   Securities
                                  ------------------      Stock      Underlying     All Other 
   Name and Principal              Salary     Bonus       Awards       Options    Compensation
       Position            Year      ($)     (1) ($)     (2) (#)        (#)         (3) ($)
------------------------   ----   --------  --------    ----------   ----------   ------------
<S>                        <C>     <C>       <C>           <C>         <C>           <C>
Lee P. Shaffer,            1998    302,300    99,660       9,100       140,900       118,543
  President, Chief         1997    290,600    90,667        --            --         108,967
  Executive Officer        1996    279,500    60,372        --            --         102,146 

William L. Boone,          1998    170,900    37,598       3,700        57,300        55,412
  Vice President-Finance   1997    164,300    51,262        --            --          55,063
  Secretary, Treasure      1996    158,000    34,128        --            --          53,056

L. Avery Corning,          1998    126,000    22,428       1,500        23,500        18,976
  Vice President-          1997    121,100    37,783        --            --          17,761  
  Operations               1996    116,400    25,142        --            --          15,326

William P. Prevost,        1998    120,000    21,360       1,500        23,500        17,158
  Vice President-          1997     10,000      --          --            --            --
  Marketing                1996       --        --          --            --            --

James H. Reid,             1998    192,500    34,265       1,500        23,500        19,916
  President & Chief        1997       --        --          --             -            --
  Operating Officer        1996       --        --          --            --            --
  of Petro-Chemical 
  Transport, Inc.

</TABLE>
 
 
 (1)   Amounts shown for 1996 and 1997 are based on the fair market value of
 stock awarded in those years under the Company's Stock Bonus Plan.
 
 (2)   The Company is required to use the closing price of its Common Stock
 on the date of grant of the restricted stock award for valuation purposes
 in this column.  The restricted period for all grants of restricted stock
 is five years with 20% of the stock granted becoming free of restrictions
 on the anniversary of the date of grant each year, beginning in 1999. Each
 recipient of restricted stock reported above will receive dividends and has
 the right to vote the full number of shares granted.  Based on the closing
 price of $32.00 per share of the Company's Common Stock on December 31,
 1998, the aggregate value of the restricted stock holdings of the Named
 Executive Officers is as follows:  Mr. Shaffer, $291,200; Mr. Boone,
 $118,400; Mr. Corning, $48,000; Mr. Reid, $48,000; Mr. Prevost, 
 $48,000.<PAGE>
 <PAGE>
 
 (3)   Other compensation includes benefits paid or accrued  by the Company
 pursuant to the Company's Profit-Sharing Retirement Plan (PSRP) and
 Supplemental Executive Retirement Plan (SERP).  Other compensation also
 includes the value of split dollar life insurance premiums paid on behalf
 of executive officers under a Senior Management Life Insurance Plan
 (SMLIP).  Plan benefits paid and/or accrued for the year ended December 31,
 1998 are presented below.
 
                                  PSRP        SERP      SMLIP
               Name               ($)         ($)        ($)
        -----------------------   -----      ------     ------
        Lee P. Shaffer            7,712      71,406     39,425
        William L. Boone          7,712      25,921     21,779
        L. Avery Corning          6,073       8,287      4,606
        William P. Prevost        5,784       5,119      6,255
        James H. Reid             7,712      12,204        --
 
      -----------------
 
 
    The following table sets forth information regarding options to purchase
 common stock of the Company granted pursuant to the Company's 1998
 Long-Term Incentive Plan to the five executive officers named in the
 Summary Compensation Table.


                                Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>

                                                                      Potential Realizable Value
                    Number of    % of Total                            at Assumed Annual Rates
                   Securities     Options       Exercise                of Stock Appreciation
                   Underlying    Granted to     or Base                   for Option Term (2)
                    Options     Employees in     Price    Expiration  --------------------------
   Name            Granted (1)   Fiscal Year   ($/Share)     Date        5% ($)       10% ($)
------------------ -----------  ------------   ---------  ----------  --------------------------
<S>                 <C>            <C>          <C>         <C>        <C>          <C>
Lee P. Shaffer      140,900        42.84        31.75       2/03/08    2,818,352    7,112,984
William L. Boone     57,300        17.42        31.75       2/03/08    1,146,143    2,892,647
L. Avery Corning     23,500         7.15        31.75       2/03/08      470,059    1,186,339
William P. Prevost   23,500         7.15        31.75       2/03/08      470,059    1,186,339
James H. Reid        23,500         7.15        32.00       3/02/08      473,760    1,195,680


</TABLE>
 
 (1)   Options granted under the Company's 1998 Long-Term Incentive Plan in
 February 1999, subject to shareholder approval of the Plan, which was
 obtained on May 4, 1998.  Options vest over a five-year period beginning
 February 3, 1999, with 20% of the options becoming exercisable on that date
 and 20% becoming exercisable on each anniversary date thereafter through
 the year 2003.
 <PAGE>
 <PAGE>
 
 (2)   As required by the Securities and Exchange Commission, the amounts
 shown assume a 5% and 10% annual rate of appreciation on the price of the
 Company's Common Stock throughout a ten-year option term.  There can be no
 assurance that the rate of appreciation assumed for purposes of this table
 will be achieved.  The actual value of the stock options to the Named
 Executive Officers and all optionees as a group will depend on the future
 price of the Company's Common Stock.
 
      -----------------------
 
 
    The following table sets forth information with respect to the five
 executive officers named in the Summary Compensation Table concerning the
 number and value of options to purchase the Company's Common Stock
 outstanding at the end of 1998.
 

                         Aggregated Fiscal Year-End Option Values
                                                                               
<TABLE>
<CAPTION>
                                                        Number of                Value of
                                                  Securities Underlying        Unexercised  
                                                   Unexercised Options   In-the-Money Options 
                                                    at Fiscal Year End     at Fiscal Year End
                                                          (#)                      ($)
                     Shares Acquired     Value         Exercisable/            Exercisble/
      Name             On Exercise     Realized       Unexercisable         Unexercisable (1)
------------------  ----------------  ----------  ---------------------   --------------------
<S>                         <C>            <C>         <C>                      <C>
Lee P. Shaffer              0              0           0 / 140,900              0 / 35,225
William L. Boone            0              0           0 /  57,300              0 / 14,325
L. Avery Corning            0              0           0 /  23,500              0 /  5,875
William P. Prevost          0              0           0 /  23,500              0 /  5,875
Jame H. Reid                0              0           0 /  23,500              0 /  5,875

</TABLE>
                                                                 
 
 (1)   This is an estimate based on the aggregate dollar value of
 in-the-money, unexercised options using the closing price of the Company's
 Common Stock on December 31, 1998 of $32.00. 
 
      -----------------------
 
 <PAGE>
 <PAGE>
 
          Severance, Change in Control and Other Arrangements
                                 
    The following Company plans provide for payments to be made to certain
 Named Executive Officers upon the occurrence of specified events after a
 change in control of the Company.
 
 Senior Management Severance Plan
 --------------------------------
    Each of Messrs. Shaffer, Boone and Corning has entered into an agreement
 with the Company that provides for payment to the covered individual under
 the Company's Senior Management Severance Plan (the "Severance Plan").  The
 Severance Plan provides for payments equal to two times the average base
 salary of the covered individual for the immediately preceding three fiscal
 years if he is terminated without cause or suffers a change in employment
 conditions within 24 months following a change in control of the Company. 
 A change in control includes (i) the acquisition by any person of
 beneficial ownership of securities representing 50% or more of the combined
 voting power of the Company's outstanding securities, (ii) the failure of
 the current Board members to constitute a majority of the Board (except
 that any new Board member approved by at least a majority of the current
 Board will be deemed to be a member of the current Board),  and (iii) the
 approval by the Board of the sale of all or substantially all of the
 Company's assets or certain other mergers, reorganizations or
 consolidations of the Company, which would result in the occurrence of any
 event described in clauses (i) or (ii) above.
 
    In exchange for payments under the Severance Plan, the covered
 individual agrees to abide by certain restrictive covenants for a period of
 one year following termination of his employment. Under these restrictive
 covenants, the terminated employee agrees that he will not influence
 customers of the Company to discontinue use of the Company's services,
 interfere with or disrupt the relationships between the Company and any of
 its suppliers, distributors, lessees or licensees, or solicit any employees
 of the Company to work for any other person or firm.
 
 1998 Long-Term Incentive Plan
 -----------------------------
    Under the provisions of the Company's 1998 Long-Term Incentive Plan (the
 "Incentive Plan"), upon the occurrence of a change in control of the
 Company, all stock options previously issued thereunder become immediately
 exercisable for the underlying shares.  The term change in control in the
 Incentive Plan includes substantially the same events that constitute a
 change in control under the Severance Plan as described above.
 
 <PAGE>
 <PAGE>
 
 Senior Managers' Life Insurance Plan
 ------------------------------------
    The Senior Managers' Life Insurance Plan (the "Plan") contains a
 provision that would require the Company to continue making premium
 payments for any covered employee who is terminated within 24 months
 following a change in control of the Company. The definition of change in
 control in the Plan includes the sale or transfer of all or substantially
 all of the Company's assets or a 50% change in the ownership of the Company
 as a result of a merger, sale of shares or issuance of new shares.  The
 Company is obligated to provide continued coverage under the Plan in the
 event of termination following a change in control until the later of (i)
 the date the terminated participant turns 65 or (ii) the date on which the
 terminated participant has been covered for 15 years.  For each of the
 current executive officers participating in the Plan, the fifteen-year
 coverage period will end in 2013.
 
 
                   Compensation Committee Report
                                                 
    In 1998 the Compensation Committee undertook a comprehensive review of
 the Company's compensation structure for senior management.  The purpose of
 this review was to evaluate each component of the compensation package
 available to executive officers and other members of senior management to
 determine how it compares to the types of compensation generally available
 in the industry.  The Committee has considered the advice of an outside
 consultant in its review of the Company's compensation structure,
 specifically to provide a market analysis in order to assess the
 competitiveness of the Company's compensation practices with those of its
 competitors for executive talent.
           
    In order to attract and retain the highest quality executive managers in
 the industry, the Company must remain competitive by offering an
 appropriate balance among base salary, short-term bonuses, long-term
 incentives and retirement benefits.  With this in mind, the Committee
 reviewed the Company's executive compensation philosophy and structure and
 considered what performance measures should be used to determine cash
 bonuses and other forms of incentive compensation.
 
    As part of its review, the Committee evaluated the appropriateness of
 the "mix" of compensation which consists of five components:  (i) base
 salary, (ii) long-term incentive compensation in the form of stock options,
 restricted stock and similar awards, (iii) short-term incentive
 compensation in the form of annual cash bonuses, (iv) retirement benefits
 in the form of Company contributions on behalf of participants in the
 profit-sharing retirement plan and supplementary executive retirement plan
 and (v) payment of premiums for senior managers' life insurance policies.   
    
 <PAGE>
 <PAGE>
 
 Compensation Philosophy
 -----------------------
    The Company maintains a compensation program that provides executive
 officers with base salaries at competitive market levels and the
 opportunity to earn incentive compensation when targeted performance goals
 are achieved.  The Committee believes that the overall compensation
 package, which the Company uses to reward and motivate executive officers,
 enables the Company to attract and retain the caliber of executives
 necessary to help it achieve targeted growth and earnings objectives.  In
 1998, the Board of Directors adopted the 1998 Long-Term Incentive Plan (the
 "Incentive Plan") and in early 1999, the Executive Bonus Award Plan (the
 "Bonus Plan") was adopted.  The addition of these plans helps fulfill the
 Committee's objective of increasing the availability of long and short-term
 incentive compensation designed to link significant portions of executive
 compensation to the Company's overall performance.  Awards made under the
 Incentive Plan are designed to encourage the retention of key executives
 and to motivate superior performance over time while awards made under the
 Bonus Plan provide a means of rewarding achievement of specified short-term
 performance objectives established by the Committee at the beginning of the
 year.
 
 Long-Term Incentive Compensation
 --------------------------------
    In January 1998, the Board of Directors of the Company adopted the
 Incentive Plan, which was approved by shareholders at the Annual Meeting on
 May 4, 1998.  The Incentive Plan provides a number of different awards
 available to reward those persons who have contributed significantly to the
 success of the Company and to provide incentive for them to remain with the
 Company.  The Incentive Plan is designed to allow the Committee maximum
 flexibility in structuring awards through a combination of incentive stock
 options and nonqualified stock options, restricted stock, stock
 appreciation rights, performance shares and performance-based compensation
 awards ("Awards").  The Incentive Plan is also intended to allow
 compensation paid to the Company's five most highly compensated officers to
 qualify as performance-based compensation as defined in Section 162(m) of
 the Internal Revenue Code.
 
    As a result of the Company's acquisition of Petro-Chemical Transport,
 Inc. and the transportation assets of Transport South, Inc., the Company's
 market has grown dramatically. In recognition of the efforts of senior
 management in the successful acquisition and integration of these entities
 into the Company and the increasing demands placed upon such executives as
 a result of the significant growth of the Company, the Committee made the
 following grants under the Incentive Plan.
 <PAGE>
 <PAGE>
 
           Stock Options - On February 4, 1998, subject to shareholder approval
      of the Incentive Plan, which was obtained on May 4, 1998, the
      Committee granted nonqualified stock options to executive officers as
      indicated in the Summary Compensation Table.  The options vest in
      increments of 20% each year over a period of five years on February 3
      of each year beginning in 1999.  In the event of a change of control
      of the Company, as defined in the Incentive Plan, all outstanding
      options become immediately exercisable.  Stock options expire one
      year after termination of employment if an employee ceases to be
      employed by reason of death, disability or normal retirement or three
      months after termination for any other reason.  The Committee elected
      to make an initial grant of a large number of options to the
      executive officers in 1998 as a way of significantly increasing the
      portion of compensation tied to the Company's performance in lieu of
      a program that would award smaller number of options on an annual
      basis. It is not expected that Awards under the Incentive Plan will
      be granted on an annual basis.
           
           Restricted Stock Award - The Committee granted certain executives of
      the  Company shares of restricted stock as indicated in the Summary
      Compensation Table.  The restrictions lapse in increments of 20% each
      year on the anniversary date of the grant and all of the stock
      awarded to each officer in 1998 will be fully vested and free of
      restrictions by the year 2003.  Certificates evidencing the
      restricted stock have been issued but are being held in escrow by the
      Company to be delivered to the holders as the restrictions lapse. 
      Holders of restricted stock receive all dividends and other incidents
      of ownership from the date of grant.
 
 
 Short-Term Incentive Compensation
 --------------------------------- 
    Upon approval of the Incentive Plan by the Company's shareholders, the
 Company's Stock Bonus Plan was terminated.  With the elimination of the
 Stock Bonus Plan, the Company did not have a plan for awarding short-term
 incentive compensation.  Therefore, the Committee undertook a review and
 evaluation of cash-based incentive plans of similar-sized companies and
 determined that the ability to award cash bonuses based on the achievement
 of short-term performance standards would be an appropriate addition to the
 Company's overall compensation package.  Effective January 1, 1999, the
 Bonus Plan was adopted after a careful review and consideration of market
 data prepared for the Committee by an outside consultant. The study
 included a comparison among companies surveyed of the percentage of each
 company's total revenue and profit shared with executives of each company,
 a review of external and proprietary sources to evaluate a range of bonus
 percentages in the market, and finally, a review of performance measures
 used by other companies to determine executive bonuses.  The purpose of
 this analysis was to compare the Company's short-term compensation
 practices with those of companies with which it competes for executive
 personnel.
 <PAGE>
 <PAGE>
 
    The Bonus Plan was adopted to provide a competitive short-term
 compensation component to the Company's overall compensation package. 
 Under the terms of the Bonus Plan, the Committee has the authority to
 establish performance measures (from among those specified in the Bonus
 Plan) to be used in determining annual bonus awards.  Unless the Committee
 adopts another or additional performance measures, the one to be used is
 the Company's annual Net Income After Taxes.  The Committee must establish
 a target amount of Net Income After Taxes (the "Target Amount") within 90
 days of the beginning of each year.  Once the Target Amount is determined,
 a threshold amount is set at 81% of the Target Amount and a maximum amount
 is set at 135% of the Target Amount.  The Committee then creates a bonus
 award schedule indicating a range of bonus payments to be paid to each
 eligible participant depending on the level of Net Income After Taxes that
 the Company achieves.  In addition to achieving at least the threshold
 level of Net Income After Taxes, the Company must also achieve at least a
 ten percent return on equity before any bonuses may be paid.
 
    In December 1998, the Committee approved the bonuses for certain
 executive officers of the Company as described in the Summary Compensation
 Table.  Although the Bonus Plan did not take effect until January 1, 1999,
 the bonuses awarded for 1998 were determined by the Committee in a manner
 consistent with that outlined above. The bonus payments reflect the fact
 that the Company's Net Income After Taxes was in excess of the threshold
 amount but slightly below the Target Amount established by the Committee in
 July, 1998.
 
 Salary
 ------
    In establishing salary levels for executives, the Committee annually
 monitors salaries at other businesses through a broad-based industry survey
 of similar-sized companies.  Salary levels are set to compare with averages
 as reported for such companies based on revenue.
 
    Lee P. Shaffer has served as Chief Executive Officer of the Company
 since 1996.  The recently completed fiscal year marked one of significant
 growth and expansion for the Company with the merger of Transport South,
 Inc. into the Company and the successful integration of the operations of
 Petro-Chemical Transport, Inc. as a wholly-owned subsidiary of the Company. 
 The acquisition of these entities increased the managerial responsibilities
 performed by Mr. Shaffer as CEO.  In recognition of his role in the
 successful assimilation of these businesses and his overall performance as
 CEO for the year, the Committee awarded Mr. Shaffer a 4.6% increase in
 salary, an award of 9,100 shares of restricted stock, the grant of an
 option to purchase 140,900 shares of Common Stock at an exercise price of
 $31.75 and a cash bonus in the amount of $99,660.  Mr. Shaffer also
 received the benefit of certain payments made on his behalf to the
 Company's Profit-Sharing Retirement Plan, Supplemental Executive Retirement
 Plan, and Senior Management Life Insurance Plan in an aggregate amount of
 $120,473, which amount represented approximately 40% of Mr. Shaffer's
 salary, as well as other benefits available to the Company's executives.
 <PAGE>
 <PAGE>
 
    Salary levels for the other Named Executive Officers for 1998, 1997 and
 1996 are reported in the Summary Compensation Table.
 
 
       Kenneth G. Younger    William O. McCoy     Paul J. Rizzo
 
 
 
                           Performance Graph
 
    The following graph shows a five-year comparison of cumulative total
 shareholder returns for the Company, the Nasdaq Market Index and an index
 of peer companies. The comparison assumes a $100 investment on January 1,
 1994 and reinvestment of dividends.
 
 
 Measurement Period (MP)       Kenan       
 -----------------------     Transport         NASDAQ          Peer
 (Fiscal Year Covered)        Company          Market          Group
 -----------------------     ---------       ----------      ---------
 
 MP - 01/01/94                $100.00          $100.00        $100.00
 
 FYE 12/31/94                  102.08           104.99          96.14
 FYE 12/31/95                  122.56           136.18          81.51
 FYE 12/31/96                  113.72           169.23          76.99
 FYE 12/31/97                  221.89           207.00         111.25
 FYE 12/31/98                  195.61           291.96         107.04
 
 
 (1)   The peer group chosen consists of companies listed under Standard
 Industrial Classification Code 4213 - trucking, except local.
 
 
            
                     INDEPENDENT PUBLIC ACCOUNTANTS
 
    Arthur Andersen LLP served as the independent public accountants for the
 Company in 1998, and they will be considered for appointment for 1999 at
 the Board of Directors' meeting following the meeting of shareholders.  A
 representative of the firm will be in attendance at the shareholders'
 meeting, will have the opportunity to make a statement if he desires to do
 so and will be available to respond to shareholder questions.
 
 
                               OTHER MATTERS
                                     
    The Board of Directors knows of no other matters that may properly be,
 or which are likely to be, brought before the meeting; however, if any
 other matters are properly brought before the meeting, the persons who are
 named in the enclosed Proxy or their substitutes will vote in accordance
 with their best judgment on such matters.
 <PAGE>
 <PAGE>
 
                           SHAREHOLDER PROPOSALS
                                     
    Shareholder proposals to be presented at the next annual meeting of the
 Company's shareholders must be received by the Company at its principal
 offices, Fifth Floor, University Square West, 143 West Franklin Street,
 Chapel Hill, North Carolina 27516-3910, on or before November 30, 1999, in
 order to be included in the Company's next Proxy Statement for such annual
 meeting.
 
    Notice of a matter to be presented by a shareholder for consideration at
 the next annual meeting of the Company's shareholders, other than pursuant
 to the foregoing paragraph, will be considered untimely if not received by
 the Company prior to February 14, 2000.  Failure to give timely notice of
 such matter will result in discretionary authority being conferred on
 management proxies to vote with respect to the matter without any
 requirement for the Proxy Statement to disclose how management intends to
 exercise its discretion.
 
 
 By Order of the Board of Directors
 
 WILLIAM L. BOONE
 Secretary
 
 March 30, 1999
 Chapel Hill, North Carolina
 
       <PAGE>
 <PAGE>                          
                                                         APPENDIX I
 
               PROXY SOLICITED BY THE BOARD OF DIRECTORS 
             FOR THE ANNUAL MEETING OF THE SHAREHOLDERS OF
                         KENAN TRANSPORT COMPANY
 
 The undersigned having received Notice of Meeting and Proxy Statement dated
 March 30, 1999, hereby appoints THOMAS S. KENAN, III and LEE P. SHAFFER,
 and each or either of them, as proxies with full power of substitution and
 revocation, to represent the undersigned and to vote as designated below
 all shares of Common Stock of KENAN TRANSPORT COMPANY which the undersigned
 is entitled to vote at the Annual Meeting of the Shareholders of the
 Company to be held on May 3, 1999 at The Kenan Center, Bowles Drive, Chapel
 Hill, North Carolina at 10:00 A.M. local time, or any adjournment thereof.
 
 UNLESS OTHERWISE SPECIFIED BELOW, THIS PROXY WHEN PROPERLY EXECUTED WILL BE
 VOTED FOR THE NOMINEES FOR DIRECTOR.
 
 (1)  ELECTION OF DIRECTORS
      [ ]   FOR all nominees listed below; except vote withheld for the
             nominees whose names are written in the space below
 
      [ ]   WITHHOLD AUTHORITY to vote for all nominees listed below
 
    William C. Friday        William O. McCoy       Lee P. Shaffer
    Owen G. Kenan            Paul J. Rizzo           Kenneth G. Younger
    Thomas S. Kenan, III     Braxton Schell
 
 (INSTRUCTION: To withhold authority to vote for any individual nominee,
 write that nominee's name in the space provided below.)
 
 
 --------------------------------------------------------------------
 
                      (Continued on Reverse Side)
 
 <PAGE>
 <PAGE>
 
                     (Continued from Reverse Side)
 
 
      (2)  IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
      OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
 
                          Dated               , 1999
                                --------------
                                                   Signature
                         -----------------------------
                                                   Signature
                         -----------------------------
 
 
 Please sign the Proxy exactly as name appears. Joint owners should each
 sign. Trustees and others signing in a representative capacity should
 indicate the capacity in which they sign.
 
 --------------------------------------------------------------------
 PLEASE MARK, SIGN AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
 ENVELOPE.
 --------------------------------------------------------------------