The on-going trade war between China and the US is continuing to affect many businesses from both countries. In the first half of 2019, changes in the tariffs have threatened many freight companies. Some may even say that the country is facing a “freight recession.” This news has led many investors to take a step back and examine the whole situation. They look at this business sector as a measurement of the US economic status or health. The S&P 500.SPX has reported many highs and lows over the recent months, which reflect the severity of the US-China trade wars, leading to the economic slowdown.
Many people are worried that the changes in import tariffs implemented by the Trump administration are going to weaken the demand for cargo movers. These include package carriers, truckers, and container companies.
Tariffs on Railroad Companies
Two major US railroads are reportedly going to face a lot of scrutiny. Union Pacific Corp (UNP.N) and Kansas City Southern (KSU.N) are going to report their second-quarter earnings soon. Multiple investors have claimed that if these two big companies confirm their worries and concerns, there will be negative consequences on the market.
Union Pacific is a Nebraska-based transportation company that operates 32,200 route miles of railroads, covering 23 states across the country. It is one of the country’s leading transportation companies. The company operates from all major West and Gulf Coast ports and even connects with rail systems in Canada. Union Pacific is the only railroad serving all six principal Mexico gateways. Its route includes the Los Angeles or Long Beach complex, which is the port in charge of most of the US-China shipload flow. In the first quarter of this year, Union Pacific’s freight volume went down due to a reduction in exports to China.
Kansas City Southern is a railroad company that ship not only within the United States but also in Mexico. It benefits the most out of its seamless cross-border shipping in and out of Mexico. The company has networks operating in both Kansas City and Monterrey. They are expected to report their year-to-year earnings and revenue growth in the mid-single-digits. Since President Trump threatened tariff changes on Mexican goods imports, investors are waiting to hear from Kansas City Southern for their advice.
Shipping container volume was particularly high in the last months of 2018, with imports increasing by 13%, but was followed by a slow first quarter in 2019. Early this year, container volume decreased due to the weakening of freight demand.
Effects of the Trade War on Truckers and Package Carriers
Although the falling freight demand has affected the railroad companies, it has been especially tough on truckers. Truckers account for around 70% of US shipment load. The trucking business has been getting worse and worse since February, and in May, they hit the lowest level in almost three years. The Dow Jones US Trucking Index has failed to perform well, gaining only 4.9% while S&P 500 got 19.4% advance.
JB Hunt Transport Services Inc. is an Arkansas-based trucking establishment that provides transportation services in the US, Canada, and Mexico. Six months ago, analysts predicted that the company would have a 15.2% increase in their earnings. However, JB Hunt has recently posted their second-quarter gains with just 1.7% growth.
The sector that is most susceptible to tariffs would be package deliverers since they offer services not only in one specific country but to multiple nations across the globe. FedEx Inc., one of the leading courier delivery companies in the world, has started to feel the consequences of the trade war. A month ago, the company reported its quarterly profit, which was better than what they had expected. Although that seems like good news, the company’s chief financial officer said that their 2020 performance is still severely affected by the declining global trade.
United Parcel Service Inc. has posted earnings of $1.93 per share, which is 0.5% less than last year’s. Earlier this year, analysts predicted it to be at least 5.4% higher.
Analysts and investors are waiting to hear the upcoming announcements from the mentioned companies to see how they are coping with the tariffs and the after-effects of the trade war.