Transportation & Logistics

Late 2022 and 2023 represented a resetting of freight transportation markets.  A lot of freight has been forced to move in different ways than it naturally would at higher prices than it should have as a result of COVID and supply chain challenges presented by a shortage of transportation capacity in trucking and airfreight markets, as well as poor railroad service that was driven by a shortage of employees and port congestion.  

2024 is likely to represent a year of freight growth in a U-shaped fashion – still slow early in the year, and accelerating throughout the year. This year will be marked by three major trends within the freightmarkets: (1) a de-stocking is largely complete in retail, and is in the late stages in manufacturing and wholesale industries, leading to freight volumes that will more closely track economic activity; (2) a bottoming of freight markets, with spot rates finding bottoms in 2Q24, freight volumes in 3Q24, and contract rates beginning in 4Q24; and (3) a continued acceleration in redefining supply chains and near shoring.  

On a macro level, we believe that while there is a weakening consumer, that overall job strength will result in a moderation of spending, and that manufacturing industries will see a greater inflow of stimulus dollars and with inventories rightsized, could show better volume growth, even in a slower Real GDP environment.

From an investment standpoint, we believe we have crossed from Quad 4 (mid Trough to Trough) into Quad 1 (Trough to Mid-Peak) in terms of our PMI cycle investment strategy, and as such transports are poised to outperform the S&P 500 in 2024.  

Longer-term, we see an acceleration in trends such as: (1) Near-shoring of supply chains; (2) Ecommerce; (3) Digitalization; and (4) De-carbonization. Our top picks are (1) UBER – a frontline beneficiary of a post-Covid normalization and on-demand delivery being driven by the Convenience Economy; (2) UPS – with the company healing the customer attrition and expense acceleration that occurred as a result of their IBT labor discussions in 2023; and (3) GXO – we still believe that defensive growth should be a focus, and given the long-term contractual nature and consistent margin profile, with the additional kicker of companies looking for multi-year reconfiguration of supply chains taking advantage of warehouse automation to curb labor cost inflation.

Top Picks

GXO Logistics, Inc.

GXO-US

Uber Technologies, Inc.

UBER-US

United Parcel Services, Inc.

UPS-US

Coverage

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CMI-US

Buy
Buy
Buy
Cummins Inc.

XPO-US

Hold
Hold
Hold
XPO Logistics, Inc.

MRTN-US

Buy
Buy
Buy
Marten Transport, Ltd.

WNC-US

Buy
Buy
Buy
Wabash Corporation

JBHT-US

Buy
Buy
Buy
J.B. Hunt Transport Services, Inc.

NKLA-US

Buy
Buy
Buy
Nikola Corporation

ARCB-US

Buy
Buy
Buy
ArcBest Corporation

CNR-CA

Hold
Hold
Hold
Canadian National Railway Company

PCAR-US

Hold
Hold
Hold
PACCAR Inc.

CVLG-US

Buy
Buy
Buy
Covenant Logistics Group, Inc.

KNX-US

Buy
Buy
Buy
Knight-Swift Transportation Holdings, Inc.

LYFT-US

Buy
Buy
Buy
Lyft, Inc.

UPS-US

Buy
Buy
Buy
United Parcel Services, Inc.

GXO-US

Buy
Buy
Buy
GXO Logistics, Inc.

NSC-US

Buy
Buy
Buy
Norfolk Southern Corporation

R-US

Hold
Hold
Hold
Ryder Systems, Inc.

CSX-US

Buy
Buy
Buy
CSX Corporation

CHRW-US

Hold
Hold
Hold
C.H. Robinson Worldwide, Inc.

UNP-US

Buy
Buy
Buy
Union Pacific Corporation

RXO-US

Hold
Hold
Hold
RXO, Inc.

RLGT-US

Buy
Buy
Buy
Radiant Logistics, Inc.

WERN-US

Hold
Hold
Hold
Werner Enterprises, Inc.

FDX-US

Buy
Buy
Buy
Fedex Corporation

ODFL-US

Sell
Sell
Sell
Old Dominion Freight Line, Inc.

EXPD-US

Hold
Hold
Hold
Expeditors International of Washington, Inc.

CP-CA

Buy
Buy
Buy
Canadian Pacific Kansas City Limited

UBER-US

Buy
Buy
Buy
Uber Technologies, Inc.