Transport stocks are taking it on the chin again on Thursday, as investors continue to worry the COVID-19 pandemic will significantly impact domestic and international shipping volumes and eat into results for at least the first half of 2020, if not for longer.
At 1:30 p.m., shares of FedEx (FDX -8.10%) and Canadian National Railway (CNI -2.15%) are down roughly 10%, while Union Pacific (UNP -3.10%) shares are down about 4%. Union Pacific was down more than 10% earlier in the trading session.
President Donald Trump on Wednesday night announced a series of new travel restrictions designed to combat the spread of the novel coronavirus, including a mention of international cargo shipments.
That mention appears to have been in error, with Trump on Twitter late Wednesday clarifying the restrictions are on people, not goods. But the uncertainty contributed to the market sell-off Thursday and served as a reminder of the risks facing transport and shipping companies.
FedEx is facing these new challenges at a pivotal time for the company. The shares had a miserable 2019, weighed down by trade wars and Brexit. At the same time revenue was under pressure, the company was spending heavily on its domestic infrastructure to better handle anticipated growth in e-commerce deliveries.
2020 was supposed to be the year that all of that investment paid off for FedEx. With shipping volumes now under pressure and facing a growing risk of a U.S. recession, that turnaround seems further off by the day.
Railroads similarly would face revenue pressure if shipping volumes do not quickly recover. The sector is also likely to get hit by a fall in crude prices, which should both make trucking more competitive against rail and could dry up U.S. oil-producing customers.
It's too soon to call a bottom on these shares because the full extent of the outbreak is still unknown, and it is impossible to say with any certainty whether the U.S. will fall into a recession or how deep and long that recession will be. It now seems certain shipping companies will feel the impact when they announce earnings. It also seems likely that barring a severe, prolonged slowdown, the stocks could be reaching oversold territory, but that's all speculation for now.
For investors with a long-term time horizon who believed in these companies in January, there is no reason to sell now after these declines. These are large companies with the wherewithal to weather a downturn and competitive advantages to help them grow on the other side of it.