When Amazon is able to get the US Postal Service to start delivering its packages on Sundays, it may be fair to assume that the business of transporting is in the sweet spot.
That healthy environment has also translated to the stocks of transportation companies. The Transporting America motif is up 8.1% in the past month, and it has gained 18.7% since it’s inception on April 29, 2013.
During those same timeframes, the S&P 500 is up 4.6% and 14.7%.
Even before Amazon’s announced partnership last week, several signs have appeared to confirm that moving packages, cargo, and other commodities were on the upswing.
The Postal Service itself recently said that it expected to ship 15 billion pieces of mail and packages between Thanksgiving and New Year’s. That represents a 12% surge. While the Postal Service still faces economic uncertainty, that swell of holiday package-delivery should extend to the major private operators.1
Take UPS and FedEx, for example, which happen to comprise one-fourth of the Transporting America motif. UPS said it expects to handle 527 million packages this holiday season, representing growth of 9.8%.
FedEx said in October that it anticipates holiday shipping activity will rise 13% to 280 million pieces.
Even away from direct-to-consumer delivery, the numbers seem strong. The most recent railroad transport data showed that US carloads were up 5.6% in October, excluding coal and grain. As Association of American Railroads Senior Vice President John T. Gray put it, “There’s been some concern lately that the recovery may be running out of steam. Rail traffic data for October doesn’t seem to support that.”2
Gray went on to note that a number of economically sensitive commodities, like lumber, autos, and chemicals, saw higher traffic volumes in October.
But it’s been the strength – and plentifulness – of another commodity that has been a primary driver of stronger railway operations.
North-of-the-border firms Canadian National and Canadian Pacific (combined, they represent more than 17% of the motif’s weighting) have climbed to record highs recently following third-quarter earnings that surpassed Wall Street estimates. Canadian Pacific even showed a 45% jump in quarterly profit.3
Both companies benefited from the growing demand for hauling crude oil, a function of the recent boom coming out of shale oil and gas exploration.
With only six weeks until Christmas, it’s possible that investors’ bullishness for transportation stocks will continue until at least the end of the year. It stands to be post-holiday data that will determine whether it’s approaching time to put on the brakes.
1Douglas A. McIntyre, “US Postal Service Predicts Record Holiday – FedEx and UPS Will Shine,” 24/7 Wall St., Nov. 7, 2013, http://finance.yahoo.com/news/u-postal-predicts-record-holiday-113527013.html, (accessed Nov. 12, 2013).
2Association of American Railroads press release, Nov. 7, 2013, https://www.aar.org/newsandevents/Freight-Rail-Traffic/Pages/2013-11-07-railtraffic.aspx#.UoBAa_l6bwq, (accessed Nov. 12, 2013).
3Frederic Tomesco, “Canada Rail Stocks Reach Record as Profits Beat Estimates,” Bloomberg.com, Oct. 23, 2013, http://www.bloomberg.com/news/2013-10-23/canadian-pacific-profit-beats-estimates-amid-lower-expenses.html, (accessed Nov. 12, 2013).