Today’s Pickup: Transport sector outperforming stock market

Good day,

After a slow start in 2018, transport sector valuations have picked up and are now outperforming the larger stock market. The Dow Transport Index has grown 5.33% since reaching its bottom on Feb. 9; the S&P 500 has grown 4.3% in the same period.

The strengthening performance of the Transport Index—which tracks companies from JB Hunt, FedEx, Delta Airlines, CSX, to CH Robinson—should reassure adherents of the century-old Dow Theory, which holds that the transportation sector’s performance is a leading indicator of overall economic activity. The idea is that shares of companies that move people and goods tend to do well when the economy is strong, and that flagging demand for those services predicts lower industrial production and retail sales.

Did you know?

The Census Bureau reported earlier this week that total business inventories rose 0.6% in January from December’s levels. Retail inventories posted the strongest growth in a year, improving 0.7% in January. Much of this gain in the retail space was driven by the auto industry however, as motor vehicle and parts inventories surged 1.7% during the month. Retail inventories excluding motor vehicles rose a more modest 0.1%.

Quotable:

“Increasingly in the U.S., when there’s acceleration in business expansion, there’s a sharp plunge in trade balance. The tax reform drives the deficits larger because the capital goods that the firms are increasingly buying are here in Asia”

-James Sweeney, chief economist Credit Suisse

In other news:

Knight-Swift buys Abilene Motor Express

Kevin Knight isn’t done yet: the acquisition brings an additional 400 trucks and $100M in annual revenue to the mega-carrier. (Wall Street Journal)

FedEx has started adding robots to its distribution centers

Amazon bought robotics company Kiva in 2012; now parcel carriers like FedEx and DHL are adding autonomous robots to their freight depots to move large, irregular items that don’t fit onto conveyors. (New York Times)

CMA CGM expects momentum to continue

The French container line, the third largest in the world by TEU volume, saw 2017 revenues rise 32% over 2016 and realized a profit of $730M, a reversal of 2016’s $430M loss. (Maritime Executive)

Union Pacific used drones to check on workers’ safety compliance

The railroad’s unionized workers, represented by the International Association of Sheet Metal, Air, Rail and Transportation Workers, filed complaints with the FAA and FRA, and the railroad put a temporary halt to the monitoring. (Wall Street Journal)

As Saudi prince visits U.S., shale transforms oil relationship

On average, the U.S. bought 943,000 barrels a day from Saudi Arabia in 2017, the lowest since 1988. (Bloomberg)

Final Thoughts:

Orders for new Class 8 trucks are surging, sparking worries that undisciplined carriers are recklessly adding capacity. Yet there are reasons to believe that overall capacity is staying flat: used truck prices are not firming up and recent employment numbers show little if any addition to the driver workforce (5,600 new jobs). We believe that large carriers are using the tax reform windfall to replace aging trucks with more efficient models, not add to their absolute number of trucks. 

Hammer down everyone!

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