Good day,
In its earnings release last week, Deutsche Post World (DPW) noted the impact Amazon’s (NASDAQ: AMZN) logistics operations is having on its earnings. Morgan Stanley wonders if UPS could face the same fate.
“We continue to see significant risk of an Amazon insourcing event at UPS,” Morgan Stanley noted in a note today. “We will also be looking to evidence that Amazon may be ready to announce a [third-party] delivery service in Europe as it continues to insource its volumes. Note that Amazon Logistics initial entry into Europe in 2016 included reports of a plan for a [third-party] service.”
DPW (CXE: DPW.D.IX) and its DHL subsidiary said that Amazon insourcing lowered its parcel volumes in Europe, and management expected that to continue in 2020. DPW management is hopeful that other customer segments will make up for the declining volumes, but it lowered its volume growth guidance to 0% to 5% for the year.
Amazon represented 2% of DPW’s revenue and about 6% of its post and parcel business.
Morgan Stanley said that the 2% of overall revenue figure is higher than the exposure FedEx (NYSE: FDX) had when it announced its public breakdown with Amazon last year. Both events, though, could foretell what may happen to UPS (NYSE: UPS) as Amazon continues to insource more of its logistics operation, Morgan Stanley said.
Did you know?
Goldman Sachs is predicting the U.S. economy will contract 5% in March and April because of the COVID-19 impact. The firm also slashed its full-year forecast to 0.4% GDP growth.
Quotable:
“The company hasn’t had a mission, vision or values statements in probably a decade. That’s a huge thing. It’s not just some kind of fluffy, marketing speak. It’s not some kind of ‘Who do we want to be?’ and grab something from the sky externally. It’s really an introspective perspective.”
– Jon Pertchik, CEO of TravelCenters of America, on the company’s turnaround plans
In other news:
Chinese output drops amid coronavirus
Chinese output suffered a larger drop than analysts thought would happen during the country’s coronavirus outbreak. (Bloomberg)
Labor shortages could hamper store restocking
Experts are worried that labor shortages could hurt the ability of stores to restock as companies and employees self-isolate out of concern for their health. (Washington Post)
Fed cuts interest rate, implements quantitative easing program
The Federal Reserve has cut interest rates to near zero and will implement a $700 billion quantitative easing program to try and blunt the economic impact of the coronavirus. (CNBC)
Automated trucking
Automated trucks are now hitting highways, and they promise to disrupt the industry as we know it. (CBS News)
Airlines could receive government assistance
Delta, American and United could receive government assistance to compensate for a dropoff in revenue due to the coronavirus outbreak. (Reuters)
Final thoughts
As retailers alter schedules and states order restaurants and other non-essential businesses to close or limit their hours/occupancy rates, the ripple effect is going to accelerate. Depending on how long these restrictions remain in place, the only goods that could be moving for the next few weeks may be grocery and gas; good for those carriers, but not so much for the industry as a whole.
Hammer down, everyone!