Transportation & Logistics

History doesn’t repeat, but it rhymes.  Mark Twain just didn’t realize he was talking about freight equity cycles. While the Covid-19 recession was unlike anything I’ve seen in my five freight cycles, there were important similarities that set the table for a more traditional freight cycle recovery, and equities are responding as they should.  We saw meaningful capacity reduction across all spectrums of rail, airline and truck, as well as a dramatic reduction in business inventories, lower interest rates, significant government stimulus, and now increasing green shoots that we may be emerging with a multi-year runway of economic growth.  While the near-term economic outlook and the pace of eventual recovery is still uncertain, many of our recovery trip-wires are firing the way they should be.  Each downturn results in a change in behavior on the other side of recovery.  In this cycle, we are looking at secular trends of (1) De-Urbanization; (2) near-shoring of supply chains; (3) ecommerce has advanced 2-3 years ahead of schedule, resulting in new consumption and logistics patterns that are spurring new industries; (4) De-carbonization is accelerating; (5) global trade is re-opening; and (6) we don’t believe capacity will come back as quickly as investors believe.  Our top picks in the new world order are UBER & LYFT – different ideas but beneficiaries of a Covid-normalization and on-demand delivery; FDX/UPS – beneficiaries of the rapid shift in B2C behavior and shrinking airline capacity, CP as we believe investors are overly discounting merger growth opportunities, and finally, Truckers KNX and MRTN on a dislocation in valuations.

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