FORM 10-Q

                        SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549

(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

            For the quarterly period ended     September 30, 1996
                                               ------------------
                                      OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

                
Commission File Number 0-12058
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                           KENAN TRANSPORT COMPANY                
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)


               North Carolina                         56-0516485     
      -------------------------------               ---------------    
      (State or other jurisdiction of                (IRS Employer
       incorporation or organization)              Identification No.)


                 University Square - West, 143 W. Franklin Street
                     Chapel Hill, North Carolina, 27516-3910            
            -----------------------------------------------------------
            (Address of principal executive offices, including Zip Code)


                                 (919) 967-8221                        
            -----------------------------------------------------------
                 (Registrant's telephone number, including Area Code)


      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                              Yes    X          No        
                                   -------          -------


      Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

                  Class                    Outstanding at September 30, 1996
       --------------------------         ----------------------------------
       Common stock, no par value                      2,389,497
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                              KENAN TRANSPORT COMPANY

                                      INDEX


                                                                   Page
                                                                   ----
Part I - Financial Information

      Consolidated Balance Sheets as of September 30, 1996
        and December 31, 1995                                         1

      Consolidated Statements of Income for the three 
        and nine months ended September 30, 1996 and 1995             2

      Consolidated Statements of Cash Flows for the 
        nine months ended September 30, 1996 and 1995                 3

      Notes to Consolidated Financial Statements                      4

      Management's Discussion and Analysis of Financial 
        Condition and Results of Operations                           5



Part II - Other Information

      Item 6 - Exhibits and Reports on Form 8-K                       6

      Signatures                                                      7
      
      Index to Exhibits                                               8

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                         PART I - FINANCIAL INFORMATION

                            KENAN TRANSPORT COMPANY
                          CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                           September 30,    December 31,
                                                1996            1995    
ASSETS                                      (Unaudited)       (Note 1)  
-----------------------------------------------------------------------
<S>                                             <C>            <C>
Current Assets
   Cash and cash equivalents                    $ 9,540        $ 3,220 
   Short-term investments                           --           6,886 
   Accounts receivable                            4,499          4,945 
   Operating supplies and parts                     463            506 
   Prepayments -        
      Tires                                       1,141          1,238 
      Insurance, licenses and other                 929            639 
   Deferred income taxes                          1,805          1,878 
-----------------------------------------------------------------------
         Total Current Assets                    18,377         19,312 

Operating Property
   Land                                           3,531          3,398 
   Buildings and leasehold improvements           8,309          7,159 
   Revenue equipment                             56,685         54,379 
   Other equipment                                4,431          3,492 
-----------------------------------------------------------------------
                                                 72,956         68,428 
   Accumulated depreciation                     (28,119)       (27,163)
-----------------------------------------------------------------------
         Net Operating Property                  44,837         41,265 

Other Assets                                      1,123            611 
-----------------------------------------------------------------------
                                                $64,337        $61,188 
=======================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------
Current Liabilities
   Accounts payable                             $ 1,203        $   975 
   Wages and employee benefits payable            5,246          4,148 
   Claims payable                                 3,837          4,153 
   Other accrued expenses                           219            160 
   Income taxes payable                             --             308 
-----------------------------------------------------------------------
         Total Current Liabilities               10,505          9,744 

Deferred Income Taxes                             9,114          8,767 

Stockholders' Equity
   Common stock; no par; 20,000,000 shares
      authorized; 2,389,497 shares issued 
      and outstanding                             2,996          2,996 
   Retained earnings                             41,722         39,681 
-----------------------------------------------------------------------
                                                 44,718         42,677 
-----------------------------------------------------------------------
                                                $64,337        $61,188 
=======================================================================

The Notes to Consolidated Financial Statements are an integral part of
these balance sheets.

</TABLE>
                                     Page 1<PAGE>
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                                     KENAN TRANSPORT COMPANY
                                CONSOLIDATED STATEMENTS OF INCOME
                  (Unaudited and dollars in thousands except per share amounts)

<TABLE>
<CAPTION>
                                               Three Months Ended      Nine Months Ended
                                                  September 30,           September 30,   
                                              --------------------   -------------------- 
                                                1996        1995        1996        1995  
-----------------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>         <C>     
Operating Revenue                             $16,638     $15,128     $50,862     $45,015 

Operating Expenses  
   Wages and employee benefits                  8,408       7,886      25,940      23,235 
   Fuel, parts, tires and other                 3,190       2,921       9,610       8,419 
   Taxes and licenses                           1,020         934       3,190       2,869 
   Claims and insurance                           699         614       1,896       1,772 
   Communications, utilities and rent             346         430       1,132       1,113 
   Depreciation                                 1,704       1,419       4,954       4,115 
-----------------------------------------------------------------------------------------
                                               15,367      14,204      46,722      41,523 
-----------------------------------------------------------------------------------------
Operating Income                                1,271         924       4,140       3,492 
   Interest income and other expenses, net        (97)         48           6         365 
-----------------------------------------------------------------------------------------
Income before Provision for Income Taxes        1,174         972       4,146       3,857 
   Provision for income taxes                     458         389       1,627       1,543 
-----------------------------------------------------------------------------------------
Net Income                                    $   716     $   583     $ 2,519     $ 2,314 
=========================================================================================


Weighted average number of shares
   outstanding (in thousands)                   2,389       2,389       2,389       2,387 

Earnings per share                            $   .30     $   .24     $  1.05     $   .97 

Operating ratio                                 92.4%       93.9%       91.9%       92.2% 

Dividends paid per share                      $ .0675     $ .0650     $ .1975     $ .1900 



The Notes to Consolidated Financial Statements are an integral part of these statements.    

</TABLE>
                                            Page 2
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                        KENAN TRANSPORT COMPANY
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
            For the Nine Months Ended September 30, 1996 and 1995
                  (Unaudited and dollars in thousands)

<TABLE>
<CAPTION>
                                                  1996           1995  
-----------------------------------------------------------------------
<S>                                            <C>             <C>
Cash Provided by (Applied to):
   Operations                                   $ 8,438        $ 6,755 
   Purchases of operating property, net          (8,526)        (7,456)
   Short-term investments, net                    6,886         (4,446)
   Dividends                                       (478)          (460)
-----------------------------------------------------------------------
Net Increase (Decrease) in Cash 
   and Cash Equivalents                           6,320         (5,607)
Beginning Cash and Cash Equivalents               3,220         12,759 
-----------------------------------------------------------------------
Ending Cash and Cash Equivalents                $ 9,540        $ 7,152 
=======================================================================


The Notes to Consolidated Financial Statements are an integral part of
these statements.         

</TABLE>

                                 Page 3
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                               KENAN TRANSPORT COMPANY

                       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                     (Unaudited)


1.    Basis of Presentation  

            The financial information included herein is unaudited; however,
      such information reflects all adjustments (consisting solely of normal
      recurring adjustments) that are, in the opinion of management, necessary
      for a fair statement of results for the interim periods.

            The balance sheet at December 31, 1995 has been taken from the
      audited financial statements at that date.

            The results of operations for the three and nine months ended
      September 30, 1996 and 1995 are not necessarily indicative of the results
      to be expected for the full year.    


2.    Purchase of Assets

            On June 29, 1995, the Company purchased the transportation assets
      of Cary Oil Company, Inc. for cash and entered into a long-term contract
      to provide transportation services to Cary Oil. 



                                      Page 4
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                               KENAN TRANSPORT COMPANY

                   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION AND RESULTS OF OPERATIONS


      The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial position and
operating results during the periods included in the accompanying financial
statements.


Results of Operations
-------------------------------
      Revenue for the third quarter of 1996 was $16,638,000, an increase of
$1,510,000 and 10% over the third quarter of 1995.  The growth in third quarter
revenue is primarily the result of increased demand for transportation
services. Miles operated increased 6% over 1995. Net income was $716,000, an
increase of $133,000 and 23% over the third quarter of 1995. Earnings per share
were $.30 compared to $.24 in 1995. 
      
      Revenue for the nine months ended September 30, 1996 was $50,862,000, an
increase of $5,847,000 and 13% over 1995.  The increase in revenue primarily
reflects the effect of increased demand, the acquisition of Cary Oil Company
in June of 1995 and expansion into Alabama and Tennessee markets. Miles
operated increased 9% over 1995. Net income was $2,519,000, an increase of
$205,000 and 9% over the first nine months of 1995. Earnings per share were
$1.05 compared to $.97 in 1995. 

      Operating expenses for the third quarter of 1996 totaled $15,367,000, an
increase of $1,163,000 and 8% over the third quarter of 1995. Operating
expenses increased due to an increase in the volume of business and higher fuel
prices. Diesel fuel prices began rising again during the quarter and suppliers
are predicting that they will continue to increase through the winter heating
season. The Company has fuel surcharge programs in effect that management
expects will enable the Company to obtain price adjustments as costs increase
due to higher fuel prices. Our operating ratio improved to 92.4% for the
quarter from last year's ratio of 93.9%.

      Operating expenses for the nine months ended September 30, 1996 totaled
$46,722,000, an increase of $5,199,000 and 13% over the first nine months of
1995. The operating ratio was 91.9% compared to 92.2% in 1995. 


Liquidity and Capital Resources
-------------------------------
      The Company's liquidity and capital resources are sufficient for the
foreseeable future. Working capital at September 30, 1996 was $7,872,000
compared to $9,568,000 at December 31, 1995, and the current ratios were 1.75
and 1.98, respectively. Cash and cash equivalents totaled $9,540,000 at
September 30, 1996, and the Company had no debt outstanding under its
$7,000,000 bank line of credit.

      Cash flows for the nine months ended September 30, 1996 totaled $6,320,000
compared to a decrease in cash of $5,607,000 during the same period last year. 
Cash provided from the sale of short-term investments was $11,332,000 over the
first nine months of 1995 as short-term investments matured and were reinvested
in cash equivalents. 

      The Company's operations require the storage of fuel for use in its
tractors in both underground and aboveground tanks. In 1989, the Company
implemented a program to upgrade its fuel storage facilities. Under the
program, the Company incurs costs to replace tanks, remediate soil
contamination resulting from overfills, spills and leaks and to monitor
facilities on an ongoing basis. These costs are recorded when it is probable
that a liability has been incurred, and the related amount can be reasonably
estimated. Such costs have not been and are not expected to be material to the
Company's operations or liquidity. 

                                    Page 5<PAGE>
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                              PART II - OTHER INFORMATION



Item 6.     Exhibits and Reports on Form 8-K
-------     ---------------------------------
  (a)       The Exhibits to this Form 10-Q are listed on the accompanying Index
            to Exhibits.

  (b)       No reports on Form 8-K have been filed during the quarter ended
            September 30, 1996.


                                      Page 6
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                                    SIGNATURES


      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          KENAN TRANSPORT COMPANY
                                               (Registrant)



DATE:       November 10, 1996             BY:   /s/  William L. Boone
                                                ----------------------------
                                                Vice President-Finance and
                                                Chief Financial Officer      


                                     Page 7
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                               INDEX TO EXHIBITS


The exhibits filed as part of this report are listed below:


 Exhibit
  Number                         Description
---------   -----------------------------------------------------------  
    27       Financial Data Schedule for the 3rd Quarter 10-Q.





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