Every story about the U.S. Postal Service is about its red ink. It is endless; what is to be done? That is why it was interesting to read a brief analysis of the USPS put out Monday by the transportation research team at Morgan Stanley, led by Ravi Shankar. That team definitely sees a corner being turned in the last mile part of the business. The results, according to Morgan Stanley, “highlighted growth in last mile and e-commerce package delivery as focus areas.” A governing agency approved proposed price increases, and the crushing debt levels at the USPS are starting to come down. “During 4Q, the Postal Service reduced debt by $1.8 bn to $13.2 bn and plans to bring down debt to $11 bn by May 2019, which the Postmaster General claims will be a sufficient level to run the business and make necessary investments,” the report said. “The Postal Service resurgence could appear more and more viable with the reduced debt levels, price increases, and last mile focus. We await the Presidential taskforce recommendations and continue to believe that a reformed USPS makes a formidable opponent to UPS/FDX.” (NYSE: UPS) (NYSE: FDX)
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Among the casualties on Wall Street’s Monday plunge, truckload carriers did fairly well. Notable gainers among the carnage were Heartland Express (NASDAQ: HTLD) up 1.6%, J.B. Hunt (NASDAQ: JBHT) up 1.39%, Knight Swift (NYSE: KNX) up 1.54%, U.S. Xpress (NYSE: USX) also up 1.54% and Werner Enterprises (NASDAQ: WERN) up 2.12%.
“We are running toward a lighter truckload model than we have typically done in the past. The goal would be about half of our power supply by third parties and half of it supplied by our own equipment and drivers. We think that has a better return focus for us from our capital that we invest, even though it's a very small part of our business.”
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Lagging data in the transport sector
Is there any element of the transportation industry in which ecommerce isn’t the most important factor today? OK, maybe the driver squeeze. But the CEO of J.B. Hunt talked about it at a recent conference; we mentioned earlier about Morgan Stanley’s positive outlook on the U.S. Postal Service driven by ecommerce; and it’s at the heart of the dispute between Canada Post and the Canadian Union of Postal Workers. The contract between the two expired over the weekend. There was no strike nationally, but there are localized walkouts. And one of the biggest issues the union is citing is that they’re all just working too much, and ecommerce is the reason. Too many kilometers walked every day; terrible record of accidents on the job, and so on. It’s easy to be cynical and assume this can all be cured by money. But national postal services are being called upon to do dramatically more in one part of the business even as traditional letters and other mail continues to shrink. The services are changing rapidly and in Canada, it’s getting a pushback from their workers.
Hammer down everyone!