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Why Shares of Transport Companies Are Up Today

By Lou Whiteman - May 18, 2020 at 3:41PM

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A vaccine trial raises hopes of the economy normalizing sooner than feared.

What happened

Shares of transportation and logistics companies are surging on hopes that scientists are making progress in developing a COVID-19 vaccine, which could speed the process of reopening the economy and getting shipping volumes back to normal levels.

Echo Global Logistics (ECHO) shares were up 11% on Monday afternoon, while shares of FedEx (FDX 0.63%), United Parcel Service (UPS 0.98%), and XPO Logistics (XPO 4.36%) were all up more than 5%.

So what

The COVID-19 pandemic has disrupted global supply chains and slowed business-to-business activity, crimping some of the most profitable businesses for shipping companies. Business-to-consumer shipping is up thanks to stay-at-home orders that have forced consumers to shop online instead of in stores, but even that has caused havoc.

A semi truck on a desert road

Image source: Getty Images.

Last month, UPS said that while volumes were up in the first quarter, margins were down because the home-delivery business tends to be the most cost-intensive -- and the least profitable. And FedEx last week capped the number of shipments it would receive from certain retailers from store locations due to those packages' overwhelming operations.

XPO CEO Brad Jacobs last month said, "Things are difficult right now, and they'll get worse in the short-term," but predicted, "then they'll get much, much better. That's what I see for XPO, our industry and the world."

Investors in these companies have been waiting for that time to come. The markets on Monday were given reason for optimism when biotech Moderna announced promising early results from a clinical trial into a potential COVID-19 vaccine.

If all goes well for Moderna, the vaccine could be the first step in Jacobs' prediction that conditions will recover eventually, and when they do, things will get much better. Investors are buying into that hope on Monday.

FedEx is getting an added boost after it announced a collaboration with Microsoft to better manage and analyze shipping data and make FedEx's operations more efficient.

Now what

A word of caution about the vaccine trial that has the markets jumping on Monday: The Moderna results were based on an early-stage trial, on the results with eight participants. Biotech is a tricky industry full of stories of promising treatments that withered under further trials, and Moderna has a long way to go until we know for sure whether the vaccine is both effective and safe.

These transport companies have all underperformed the S&P 500 year to date due to concerns about the pandemic's impact on the global economy and shipping volumes. If you share Jacobs' long-term optimism -- and I do -- there is solid reason to buy into these companies right now. But be warned that just because there are positive vaccine headlines today, it's not necessarily a straight climb higher from here.

Lou Whiteman owns shares of FedEx and XPO Logistics. The Motley Fool owns shares of and recommends FedEx. The Motley Fool recommends XPO Logistics. The Motley Fool has a disclosure policy.

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Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
$230.68 (0.63%) $1.44
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
$204.89 (0.98%) $1.98
XPO Logistics, Inc. Stock Quote
XPO Logistics, Inc.
$60.12 (4.36%) $2.51
Echo Global Logistics, Inc. Stock Quote
Echo Global Logistics, Inc.

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