Happy Indepence Day weekend!
With life beginning to return to normal in many ways, it is time to start taking stock of the changes that have taken place over a most extraordinary year and a half. It seems not that long ago when everyone was scared and uncertain in the early days of the pandemic. The world was shutting down; no one knew what to expect. During this time, essentially all equities suffered significant price declines. However, as the effects of the pandemic started to become clear, some companies (and their stock prices) began to benefit from the shift to working and staying at home. For example, the teleconferencing company Zoom fared very well, as did online retailers like Amazon.
Additionally, the shift to online shopping had an obvious and substantial benefit for the major shipping companies. The chart below shows the stock performance of FedEx (orange line) and UPS (purple line) compared to the broader Dow Jones Transportation Average (red line.)
You can see the initial steep decline around March 2020, with the subsequent rebound that began shortly thereafter as investors realized shipping companies would continue to do well. This occurred as shifts to online spending became more pronounced, and perhaps permanent. Since the beginning of 2021 however, UPS and FedEx have stopped out-performing their peers. (Or perhaps, their peers have started out-performing them.) Year to date for 2021, both stocks have just matched the Dow Transportation Average.
Whether this is just a consolidation event, or actual trouble for the delivery giants, remains to be seen. It may be that there is just too much of a good thing; the two major freight carriers FedEx and UPS are reportedly swamped with business. Both companies are raising rates and hiring employees to add capacity. However, in the trade journal Freightwaves, author Andrew Cox notes one study showing on time delivery of just 88% for UPS and just 71% for FedEx. The lack of ability to service customers opens the doors to existing competitors, not the least of which is the 600 pound gorilla in the room, Amazon, which is poised to surpass Walmart next year as the largest retailer in the US. Amazon has quietly built a delivery network that is expected to surpass UPS, maybe even later this year.
Jim, Mark, and Dave
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