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Will the Bull Run Continue for Transport Services Industry?

Nalak Das

Transportation service providers have been witnessing strong performance in Wall Street since the beginning of this year. This industry offers equipment financing and leasing, logistics, and supply chain management services to transporters.

A substantial surge in manufactured goods, massive tax hauls and business-friendly policies have fueled transport service providers’ growth.

However, U.S. stock markets have been facing severe volatility since trade negotiations between the United States and China broke down abruptly in the first week of May. At this juncture, can transport service providers maintain their momentum?

Strong Industry Data

Industry bodies of several transportation industries, such as freight rail, airlines, trucking and shipping have forecast strong growth.

In February 2019, the Association of American Railroads, the industry body of the class 1 freight railroad operators, expressed optimism that rail traffic growth will continue in the near term. The most important growth driver will be the intermodal segment.  

In December 2018, the International Air Transport Association predicts global net profit of $35.5 billion for the industry in 2019. This is much higher than the profitability of $32.3 billion in 2018. This bright projection can be attributed to strong demand for air travel.

In its 2018 freight transportation forecast, the American Trucking Association has predicted that there will be consistent growth for truckers driven by manufacturing, consumer spending and international trade over the next 12 years.

Moreover, demand for cross-broader trade and shipping is likely to remain stable. In 2019, the shipping industry will be driven by growth in world trade, especially demand from newly-industrialized emerging economies.

Robust Intermodal Business

In February 2019, the Association of American Railroads, the industry body of the class 1 freight railroad operators, expressed optimism that rail traffic growth rate will continue in the near term. The most important growth driver will be the intermodal segment.  

Growth of intermodal volumes in recent years is anticipated to drive railroads’ top line. Volumes at this key revenue-generating unit rose 5.6% in 2018, thanks to an increasing number of freight conversions from highway to rail owing to limited truck supply.

Strong intermodal volumes have been bolstering railroads’ top line and the uptrend is likely to continue going forward. Although coal volumes have historically contributed the maximum to rail carloads, the companies have shifted their dependence to intermodal owing to dwindling coal volumes.  

Intermodal now reportedly dominates overall carloads. Apart from a low truck count, growing e-commerce demand is another factor fueling growth of intermodal. Consequently, the sluggish coal scenario is likely to be less of a hindrance for railroads.

Performance of Major Transport Services Providers
 

The chart below shows price performance of major transportation service providers year to date.

Year to date, the transportation services industry has grown 16.8%. Major players in this industry such as, REV Group Inc. REVG, Fly Leasing Ltd. FLY, Hertz Global Holdings Inc. HTZ, Hub Group Inc. HUBG and Expeditors International of Washington Inc. EXPD have gained 75.6%, 58.3%, 18.1%, 8.4% and 7.2%, respectively. Fly Leasing sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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