Tuesday, September 8, 2015

Delivering a Drop

Carrier stock prices hit hard by stock market selloff.

In the stock market’s mini-meltdown last week, some of the biggest share price drops were delivered to freight carriers, particularly those with a worldwide scope.

Logistics and transportation companies fell sharply in the global stock market rout, with investors worrying that a downturn in China and other large economies would hurt companies that move goods around the world, reported the Wall Street Journal. Shares of FedEx were down about 9% in morning trading before mounting a partial recovery Monday afternoon. Other global carriers, including United Parcel Service and Deutsche Post saw declines, with UPS off 3.7% and the DHL parent ending down 4%. The slide underscores how much logistics companies stand to lose if global economic growth and trade continue to slow. These companies have seen revenues soar 48% in the last five years, as companies have increasingly looked abroad to source and sell their products and supply chains have grown more complex.

FedEx and UPS have been banking on international growth to boost their core domestic businesses, including more shipping of cross-border e-commerce, as well as acquisitions and investment abroad. However, logistics and transportation companies have seen steep declines in share prices this year as they have fallen short of growth expectations.

Shipping lines, many already on shaky ground, saw particularly steep losses, reflecting growing concern about their ability to cope with a glut of capacity during a period of slowing growth. Weak demand comes as companies have invested in boosting capacity by introducing giant new container ships. Danish conglomerate A.P. Møller-Maersk A/S, which holds the world’s biggest container-shipping capacity, ended down 6.5%, its lowest close since January. U.S. trucking companies, which tend to reflect conditions in the domestic economy, also sold off. YRC Worldwide Inc., one of the country’s biggest trucking companies, was down to $16.40, about 25% below its high for the year set three weeks ago.

With growth slowing, carrier conglomerates have taken their hoards of cash and gone shopping. This is at least a partial explanation for the recent string of acquisitions by logistics companies, which are finding it more difficult to grow organically. But acquisitions can be difficult to execute as companies using multiple technology systems are having trouble integrating their operations, and freight carriers have been struggling to turn a recent rash of acquisitions into profits.

Or, they can just do it the old-fashioned way, raising rates and squeezing more revenue out of their customer base.

Kirk Shearer
800-989-0054 x103

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