SA: FedEx & UPS headline Credit Suisse's list of top transportation stocks
SEEKING ALPHA reports: Credit Suisse started off coverage on the transportation and logistics sector with a ...
Pundits as well as truckers are bullish on the outlook for surface transport in the US, at least for the first half of 2021.
They point to a combination of tight capacity and strong demand, which leads to full loads, and so shippers must brace for further increases in freight costs.
In its latest WorldFlash report on the global economy, market information provider IHS Markit diagnoses ‘pandemic fatigue’, which is slowing down growth.
It estimates GDP contraction in the UK and in the EU during the fourth quarter of 2020, followed by a limited recovery in the first quarter of this year. For the US, on the other hand, its researchers estimate 3.7% GDP growth in the past quarter and predict 1.9% average quarterly growth this year.
Manufacturing activity in the US continued to grow in December, the seventh consecutive month of expansion, according to the Institute for Supply Chain Management. New orders climbed 2.8%, also growing seven months in a row. Only the heavy industry segment was still weak.
The PMI rose 3.2% over November to 60.7%. In its outlook on the freight market for 2021, financial services provider UBS projects a 3.5% rise in US industrial production.
Unsurprisingly, UBS sees the strongest momentum in the e-commerce sector. Having soared 34% last year, it is expected to climb 16% in 2021.
This promises juicy returns not only for the parcel carriers like UPS and FedEx, but also for the LTL sector, continuing its strong run in the second half of 2020.
Besides the retail sector’s shift to online sales, using store space for distribution, LTL carriers also stand to gain from the rapid proliferation of micro-fulfillment centres, which do not justify the use of full trucks.
The truckload market is poised for more modest expansion in the coming year, according to UBS. As it should benefit from increased industrial production and more B2B activity, UBS analysts see it ahead of 2020 levels in the first half of the year, slowing as restocking runs out of steam.
Like the truckload sector, rail should also fare well, according to UBS, fuelled not only by industrial traffic but also by the retail sector, which has driven the sharp rise in intermodal traffic to move imports from Asia to the interior. Moreover, truckload capacity is expected to remain constrained, both in terms of equipment and drivers, which should boost domestic intermodal traffic.
All of these trends point to rising transport costs for shippers.
E-commerce, described as going through a peak season since the outbreak of the pandemic, has seen 4.9% increases in general rates from FedEx and UPS this year, plus several surcharges remaining in place. With most parcel delivery operators experiencing network and capacity constraints, UBS reckons they should be able to realise “strong pricing gains”.
Its analysts predict mid-to-high single digit rate increases in the LTL segment, more moderate rises in truckload, while all road sectors are expected to continue to see pricing driven up by tight capacity.
Investment bank Stifel, which produces the monthly CASS Freight Index, tracking monthly aggregate freight deliveries, notes that trucking spot rates climbed steadily through the second half of last year. With capacity forecast to remain largely static, its analysts expect trucking rates to go up around 5%.
One consolation for shippers is the prospect of little upward cost pressure from fuel prices. The US Energy Information Agency forecasts a modest rise in demand for oil this year, which should leave global demand well below 2019 levels.