FDX vs UPS as Diesel Prices Squeeze Shipper Margins

Sam (0:01)

We're back on Morning Trade Live and looking at some freight and logistics stocks this morning.

FedEx is slower by 1.3, off the back of an interesting day yesterday for investors. UPS is down, CH. Robinson also trailing by about 4 tenths. JB Hunt, though, on the way higher, up 2 tenths of a percent. So we're seeing a little bit of a mixed bag across this space for us this morning. So let's go inside out on freight and logistics. Joining us now is Scott Martin, Partner and Wealth Manager over at Kingsview Wealth Management. Just wondering what went down at this investor shareholder meeting yesterday with FedEx? What were your major takeaways?

Scott Martin (0:38)

Well, major takeaways, Jim, was just the fact that we have a kind of a transition period here for FedEx and some of the other freight shippers, both with regards to economic, say, influence with regards to how the economic cycle is maturing. And I think with everything coming up in the fall here, both geopolitically and certainly nationally here in the United States, there's a little bit of a, say, a flux in demand. And then, of course, because of the war and because of some of the geopolitical issues, we've got an issue with freight costs. And so we have some demand, obviously, suffering a bit from the economic side. And then, of course, some demand possibly suffering, too, because of just the mere cost of ship things. And of course, consumer demand suffering as a result of that because the price is being higher. So a lot of things say a bit of confluence here. But something I think going forward, too, when you look at the shippers is the economic data still suggests that there is an economic expansion at hand here. And so shipping should survive through this whole, say, lull. But the fact that there is going to be some struggle with shipping cost going forward is something that each one pointed out.

Sam (1:28)

Yeah, you raise a lot of interesting points here. I mean, it's one thing to obviously see the resilience in the economy. But it's another thing to obviously be grappling with these higher prices. I mean, no doubt that's good for margins as long as you have that demand, which as you say, pricing power, true.

Exactly. Yeah. So how are we thinking about this space? I mean, we're just having a fascinating chat with the folks over at Charles Schwab about diesel prices. How is the broader space bearing right now in light of all of that, particularly when you talk about margins?

Scott Martin (1:57)

It's been difficult. And the margins have been okay because the rise has been, it's quick and then soft and then quick and then soft. So there's been a little bit of push and pull there. You mentioned the consumer demand, though, has still been there. So that's been good. So that's helped with margins staying the same. But diesel, my goodness, what a rocket ship of price diesel has been. And then you look at FedEx alone in September, already having a pretty big struggling month. So you look at the month in the October, November period, which has been somewhat slow until the Christmas shopping season, of course. So historically, so you're just going to see a lot of, I think, a lot of questions come up with some of these names. And then I think we're seeing that the stock market pricing so far. But to us, I think these are areas where if you get some drawdown in price, you get some selling, if you get some, say, liquidations that come about because oil prices stay high. I mean, being down today is nice, but seeing oil spike over the weekend on Monday was not great.

For the names, but also if you just look at the fact that investors seem to be selling first and asking questions later, I think that's actually an opportunity to pick up some of these shippers just because they're getting the valuations that might be more attractive if things do improve geopolitically.

Sam (2:59)

OK, so who do you like in that respect then? And in the same sort of question, I mean, how would you look at a FedEx, for instance, versus a UPS? Because I'm looking at the year to date performance and they're going in completely opposite directions right now.

Scott Martin (3:15)

They are, and that's a really funny thing, because if you look at those two names, you'd figure they would kind of trend together, you'd figure they have the same issues. But I think what you're trying to see is you're looking at valuations, you're looking obviously at some management concerns, and I think you're looking at consumer preference. And so, Sam, I think you ought to take one versus the other and kind of look at how UPS has performed versus FedEx and maybe see though that there may be a reason in some sense to look past the UPS and maybe look towards a FedEx just on, say, valuation only because of the fact that I think there's a reason to believe that one is not going to necessarily replace the other, but one might actually start to compliment another just because of the fact that we've had this adjustment to the higher fuel prices, but also if you look at consumer demand, relatively the same but obviously different kinds of business on some of the other, say commercial shipping rates that they have and commercial shipping duties that they have. But I still like, you mentioned CH. Robinson on there, JB. Hunt is one that's up today a little bit, but I think so far you gotta look at some of these names valuation-wise, maybe vis-a-vis each other versus maybe how some of their business outlook looks.