Can E-Commerce Revive Coronavirus-Hit Transportation Sector?
It is a well-known fact that stocks belonging to the transportation sector are having a tough time due to the coronavirus pandemic. Notably, the health scare was declared a pandemic by the World Health Organization on Mar 11.
As coronavirus claimed multiple lives, apart from infecting scores across the globe, several countries were under lockdown amid wide-spread travel restrictions, particularly since March, thereby crippling the transportation sector. In fact, cases are surging even now as economies re-open. For instance, the United States recorded 52,789 new cases on Jul 1, thereby crossing the 50,000 mark in a day for the first time since the COVID-19 outbreak. What is worse is that even more 55,220 cases were registered the following day.
E-Commerce Surge: A Bright Spot
As a result of the pandemic and the current rise in new cases, people are staying indoors and avoiding going out unless absolutely necessary. Consequently, in this coronavirus-ravaged world, e-commerce — the method of buying and selling goods and services via a software platform — is gaining further momentum. This is because the need for door-to-door delivery of essentials during this unprecedented crisis is rising. E-commerce, which already became part and parcel of daily lives in today’s fast-paced world, is witnessing higher demand now amid the pandemic-induced social-distancing protocols, quarantine and lockdowns. Per ACI Worldwide’s data, e-commerce sales soared 81% year over year in May 2020. This exponential growth is a huge positive for most of sector participants, in these otherwise gloomy times.
Adding to the buoyancy, FedEx Corporation FDX, which carries a Zacks Rank #3 (Hold), recently reported better-than-expected revenues and earnings per share in fourth-quarter fiscal 2020 (ended May 31, 2020) on surge in deliveries to online shoppers as they are compelled to indoors in the current scenario. Revenues at FedEx’s Ground unit jumped 20% year over year to $6,394 million during the quarter on residential delivery volume growth. Notably, in the quarter, total U.S. domestic residential volume was 72% at FedEx compared with the 56% recorded in fourth-quarter fiscal 2019. Owing to the better-than-expected results driven by the increased volume of home deliveries, the FedEx stock gained, following the Jun 30 earnings release.
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FedEx’s rival, United Parcel Service UPS is also benefiting from the surge in e-commerce deliveries in the business to consumer market. Markedly, shares of UPS have gained 12% in June primarily owing to this tailwind.
The spike in e-retail demand is anticipated to have aided the second-quarter performance of companies like UPS, Air Transport Services Group ATSG and Atlas Air Worldwide Holdings AAWW. Moreover, the e-commerce boom has boosted the parcel business of railroad operator, Union Pacific UNP, per CEO Lance Fritz.
Additionally, the rise in e-commerce sales in the current scenario has proved to be a boon for cargo carriers. Moreover, with many passenger airlines (that usually carry freight as well as passenger luggage) currently shrinking their fleets due to lackluster air-travel demand, cargo carriers are making hay and flying a lot of packages. To meet the swell in e-commerce demand and also to cater to the solid requirement for flying cargos, such carriers are expanding their fleet. Evidently, UPS Airlines, UPS’ air freight division, is adding MD-11 and Boeing 747-8 freighter jets to its fleet.
Even though supply-chain disruptions due to the coronavirus pandemic indicate a huge setback, the e-commerce boom is a huge boost to the sector participants. Furthermore, the uptick in deliveries to online shoppers is likely to stay in the coming days, as due to the recent spike in coronavirus cases, people are likely to stay put mostly at their homes.
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Union Pacific Corporation (UNP) : Free Stock Analysis Report
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
FedEx Corporation (FDX) : Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report
Atlas Air Worldwide Holdings (AAWW) : Free Stock Analysis Report
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