Rising operating costs, higher equipment prices, driver scarcity and increasing truck regulatory pressures are resulting in an upward bias to freight pricing broadly, which serves as a favorable backdrop to parcel pricing, says Benjamin J. Hartford, CFA, a Senior Analyst at Robert W. Baird & Co., Inc.
“We believe that even in a relatively weak demand environment, we should see domestic freight pricing continue to rise, which is a theme that we believe investors should focus on over the course of the next few years. Investors should watch and assess which models and modes of transportation will be able to benefit from the rising cost of capacity,” he said.
Hartford says given this positive freight rate bias, he favors United Parcel Service, Inc. (UPS), which he believes is uniquely positioned to realize better-than-expected parcel pricing this cycle. As far as the asset-based cyclical stocks are concerned, the constraints in truckload capacity provide for structurally better pricing trends during the upcoming cycle, Hartford said.
“They [UPS] have greater international growth opportunities that can support revenue growth over the course of this cycle. The barriers to entry in the parcel market are as high as they have ever been, which provides the opportunity for improved operating margins and capital returns this cycle,” he said.
Wireless Operators Tackle Broadband Capacity Constraints
May 24, 2011
Potash Corp. (POT) to Benefit from Emerging Market Fertilizer Demand
May 13, 2013
Old Dominion Freight Line (ODFL) Deploying 12% to 15% of Revenue
August 07, 2015
Old Dominion Freight Line (ODFL) Capital Deployment Focuses on Equipment, Real Estate and Information Technology
December 28, 2015
Union Pacific Corporation (NYSE:UNP) to See Improving Freight Volumes in 2017
February 14, 2017
