FedEx (FDX) and UPS (UPS) stocks fell drastically on Thursday due to renewed trade war concerns. Citing anonymous sources, Bloomberg reported that Chinese officials have doubts about reaching a comprehensive long-term trade deal with the US.
Following the Bloomberg report, all of the major logistics companies’ stocks fell sharply. FedEx and UPS stocks fell 2% and 1.5%, respectively, on Thursday. Big railroad stocks including Norfolk Southern (NSC), Union Pacific (UNP), and CSX (CSX) fell 1.1%, 1.5%, and 1.1%, respectively.
The Dow Jones Transportation Average (^DJT) fell 1.3% on Thursday. All of the index’s 20 components registered an intra-day fall. Another reflector of logistics stocks’ performance, the iShares Transportation Average ETF (IYT) fell 1.2% yesterday. IYT’s portfolio includes US transportation stocks.
Renewed trade concerns
Bloomberg’s report stated that Chinese officials pointed out their suspicion during a private conversation with some US visitors in Beijing. The officials are concerned about President Trump’s impulsive nature, which makes them suspicious about signing “phase one” of the agreement, according to Bloomberg.
Notably, President Trump and President Jinping were supposed to sign “phase one” of the trade deal on November 16–17 during their visit to Chile for the Asia-Pacific Economic Cooperation Summit. However, Chilean President Sebastian Pinera had to cancel the summit due to social unrest in the country.
The summit cancelation delayed the trade negotiations between the US and China. The two parties will have to find another date and location to reach a tentative trade deal. Chinese officials’ latest private conversations raised doubts about a real trade deal between the world’s two largest economies.
However, President Trump is optimistic about signing “phase one” of the trade deal. On Thursday morning, he tweeted that the recently canceled meeting at the Asia-Pacific Economic Cooperation Summit isn’t related to the trade deal. He also said that the two sides are looking for a new location to reach a trade agreement. President Trump said that “phase one” of the contract will cover about 60% of the total deal.
Trade war hurts logistics’ financials
Logistics stocks have been gaining since mid-October due to hopes of a trade deal between the world’s two largest economies. Notably, logistics companies have suffered the most due to the US-China trade war. They faced sluggish volumes, which hurt their financial results.
On September 18, FedEx reported lower-than-expected results for the first quarter of fiscal 2020. The company said that global trade and the production slowdown hurt its overall financial results. FedEx stated that its Asia region faced soft trade due to uncertainty about US-China trade negotiations. The company’s European business dealt with negative manufacturing output in Germany.
During the third-quarter results, UPS revealed that weakness across the Asia-US trade lanes hurt its international business. Softness across the Asia-US trade lanes more than offset the benefits of improved shipments across intra-European trade lanes.
Union Pacific saw an 8% YoY reduction in its third-quarter volumes, which led to a 7% decline in its revenues. A 6% YoY decrease in the logistics volume dragged Norfolk Southern’s (NSC) third-quarter total revenues down 4%. CSX’s third-quarter revenues fell 4.8% YoY due to a 5.6% decline in volumes.