The coronavirus pandemic has been a game-changer for package delivery companies. An accelerated shift towards ecommerce has led to elevated package carrier volumes this year. Meanwhile, a dramatic reduction in air cargo capacity has given carriers the strongest pricing power they’ve been able to command in years. These two factors and other favorable conditions should enable the sector to embark on a long period of margin expansion, which is why MRP is adding Long Package Carriers as a new theme.

Related Stocks: FedEx Corporation (FDX), United Parcel Service (UPS), Deutsche Post DHL (DPW.DE)

The package delivery industry faced structural headwinds heading into 2020. Then the coronavirus pandemic came along, reversing the fortunes of major carriers such as FedEx Corporation (FDX), United Parcel Service (UPS), and Deutsche Post DHL also known as Deutsche Post AG (DPW.DE).

As noted in MRP’s August 17 report titled FedEx & UPS Goldilocks Moment is Far from Over, a stronger shift towards ecommerce, combined with historically low fuel prices, and the grounding of most commercial jets worldwide have created a goldilocks moment for parcel expeditors.

Accelerated Shift Towards Ecommerce Worldwide

Fedex and UPS have seen huge spikes in package volume since the COVID-19 pandemic began. DHL’s volumes also reached peak season levels as people shifted their purchases of nutraceuticals, health and beauty care, apparel, pharmaceuticals and home office supplies online. Although business-to-business (B2B) shipments plunged for all three transportation companies, home deliveries soared enough to make up the shortfall.

Ecommerce as a percentage of total retail stood at 21% in the second quarter of 2020, up from 15% a year earlier, and activity remains elevated. In July, for example, UPS’ volumes grew 26% compared with average monthly growth of 23% in the April-to-June period. FedEx too saw its volumes rise 22% compared with 19% growth, on average, in the first three full months of the coronavirus pandemic. Delivery of online purchases as well as product returns and exchanges by consumers account for part of the volume surge.

On FedEx’ September 15 earning call, one executive expressed the following: “Pre-COVID, we projected that the U.S. domestic market would hit 100 million packages per day by calendar year 2026. We now project that the U.S. domestic parcel market will hit this mark by calendar year 2023, pulling volume projections forward by 3 years from the previous expectation.

Politics has delivered yet another boon for the group recently. Ecommerce giant eBay, which ships hundreds of millions of items to buyers’ doorsteps each year, just announced…

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