By Bill Alpert
Shares of shipping lines, railroads and trucking firms bounced Monday morning, as the U.S. said it would reduce tariffs on China imports during trade talks. Transportation companies aren't out of the woods yet, however.
While they negotiate for 90 days, the two nations will ease the steep tariffs they each had announced in April. Those tariffs triggered a slump in Chinese imports and a slump in many transport stocks, as investors braced for the virtual severing of the China-U. S. supply chain.
But with some trucking stocks up 8% Monday, compared with a 3% rise in the S&P 500 index, traders may be getting carried away.
April's 41% drop in shipments from China will leave a big hole in the volume of transport firms during the June quarter. What's more, the freight volumes at those companies had been artificially inflated since last fall, as their customers built inventory ahead of the tariffs they expected from Trump's election.
Volume growth in railroads' intermodal carloads was exaggerated, along with truckloads at some long-haul truckers. In a trucking industry plagued by overcapacity, Monday's pause in Trump's trade war won't likely restore truckers' pricing power.
Evercore ISI analyst Jonathan Chappell wrote Monday that he isn't sounding the "All Clear" bell for transport stock investors. Uncertainty lingers on the outcome of U.S.-China negotiations -- as well as those with America's other trading partners.
The biggest jumps Monday morning were in the maritime cargo stocks. Shares of Danish shipping giant A.P. Møller-Mærsk rose 10%, while the stock of Israel-based ZIM Integrated Shipping Services rose 16%.
On the Mærsk earnings call last week, chief executive Vincent Clerc said that April volume had fallen by a third in the company's China-U. S. shipping lanes. But that trading link only makes up 5% of the company's diversified business.
He predicted a catch-up in the Chinese imports, and now he will likely prove correct. Some products are just hard to source elsewhere, Clerc said.
The railways most exposed to China trade are Union Pacific and the BNSF Railway unit of Warren Buffett's Berkshire Hathaway. BNSF doesn't release much detail, but nearly 40% of the last 12 months' carloads on the Union Pacific railroad have been intermodal containers of imported goods.
As Trump's election grew likelier, container imports swelled at the Port of Los Angeles in the second half of 2024. So did intermodal carloads on the transcontinental lines of the Union Pacific and the BNSF. Many of those intermodal cars got handed-off to the big railroads in the east -- CSX and Norfolk Southern -- so the inventory buildup helped those railroads, too.
The import bulge was easiest to see at Union Pacific. Year-over-year growth in UP's intermodal car volumes jumped from less than 5% in the first half of 2024, to nearly 20% in the second half. The strength continued into this year's first quarter.
So when shipments from China fell 41% last month, Evercore's Chappell warned that the drop would show up in railway intermodal volumes. "There's going to be a big plunge coming in the next couple of weeks," he said last week.
Monday's news should make the intermodal drop short-lived, Chappell said today. Union Pacific stock was up 6% in the morning, to $230.
But for the railroad to beat estimates for the next few quarters, its recovery would have to exceed normal seasonal volumes, says Chappell. He rates the stock a Hold.
Trucking industry stocks whose Monday moves exceeded the market's, included Old Dominion Freight Line, Schneider National, Werner Enterprises, and TFI International.
Truckers have suffered through their own private recession for the last three years, with too many trucks chasing intermodal and truckload business. Every quarter, executives talk hopefully that weak pricing will wring some operators out of the industry, but it hasn't yet happened.
"Pricing across intermodal and truckload is still bouncing along the bottom with no real immediate catalyst in sight," Chappell writes. He has few Buy ratings among freight haulers. They include J.S. Hunt Transport Services and XPO.
Also cheered by the Monday's truce talks were freight forwarders like C.H. Robinson Worldwide, and delivery companies like FedEx and United Parcel Services.
One tariff that the U.S. didn't pause is the one that applies to "de minimis" orders of less than $800 in value. These make up some part of airfreight and local delivery volumes. The fate of that tariff remains up in the air.
"We concluded that we have a shared interest," said Treasury Secretary Scott Bessent at the news conference following his weekend talks with Chinese officials. "The consensus from both delegations is that neither side wanted a decoupling."
That pronouncement didn't surprise many experts in the supply-chain business.
"Companies have invested billions of dollars in Chinese supply chains," said Yossi Sheffi, the MIT professor who runs the university's Center for Transportation & Logistics. Yet Trump's tariffs against so many trading partners had made it unclear how multinationals should adjust their supply chains.
"The worst thing is the uncertainty," Sheffi told Barron's. "It isn't just transportation. The whole economy is in a wait-and-see attitude."
Write to Bill Alpert at william.alpert@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 12, 2025 15:29 ET (19:29 GMT)
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