Transports are showing us a recovery

Traffic volumes from railroads and package shippers UPS and FedEx are showing gains from a year ago.

By Charley Blaine Apr 15, 2010 1:53PM

Pay attention to United Parcel Service (UPS) and the railroads.

They're showing us that the recovery is real. Transportation stocks are a leading indicator. The companies --whether package shippers, truckers, railroad or airlines -- see movements in the economy ahead of many indicators. And they're seeing upticks in the businesses.

UPS pre-announced its first-quarter earnings after Wednesday's close; the release had been scheduled for April 27. The company earned 71 cents a share; the consensus had been 52 cents. And it boosted its guidance for the rest of 2010.

Investors pushed the stock up 6.2% to $69.48 this afternoon; it hit a 52-week high at $69.74 earlier in the session. Rival FedEx (FDX) was up 2.6% to $96.42. It also hit a 52-week high of $97.75 during the morning.

The gain for UPS was tops among the 20 stocks in the Dow Jones Transportation Average ($TRAN) and second-best among stocks in the Standard & Poor's 500 Index ($INX). United Parcel Service

UPS said revenue was up 7% from a year ago's $10.9 billion. That would mean roughly $11.66 billion, although the company didn't offer a specific number.

The revenue growth was driven by increases of 18% in its international package business and 14% in its supply-chain and freight business.

International daily volumes grew significantly, with export up more than 9% and non-U.S. domestic up over 24%. U.S. domestic daily volume increased less than 1%, the first year-over-year growth in more than two years.

The last point is important because it feeds into the railroads. Dow Jones Transportation Index

The Association of American Railroads said today that U.S. railroads originated 288,495 carloads during the week ending April 10.


That was up 16.4% from the comparable week in 2009, with all 19 carload commodity groups showing increases from last year.

The association also said March traffic was up 7.5% from a year earlier. So, it looks like traffic is strengthening.

There is, of course, a "but," actually two "buts."

Here's the first:

While the railroads are seeing more business, the volumes are still below 2008 levels. The AAR defines volumes in terms of carloads. March 2010 carloads were 11.5% below 2008 levels.
CSX (CSX), one of the largest railroads, expects improvement in exports and industrial sectors throughout 2010 as consumer demand stabilizes and global trade improves.

Late Tuesday, CSX reported a 22% rise in profit, beating Wall Street analysts' expectations.

"The economy seems to be moving in a very positive direction. It's been growing," CEO Michael Ward told Reuters on Wednesday. "We're very encouraged. We think all of our major markets will show growth year over year."

Here's the second "but":

What the railroads acknowledge is the weakest part of their businesses is shipments of housing-related materials. Particularly crushed stone and lumber.



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