1、North America Equity Research03 September 2019 Transportation&LogisticsQuestion Book for Back to School Conference Season and Management MeetingsAirfreight and Surface TransportationBrian P.Ossenbeck,CFA AC(1-212)622-Bloomberg JPMA OSSENBECK J.P.Morgan Securities LLCSee page 29 for analyst certifica
2、tion and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a
3、single factor in making their investment We have compiled questions for each management team that will be on the road during the last month of 3Q as part of the back to school conference circuit.Sentiment on the sector has faded with the latest whiplash on trade tensions and continued slide in rail
4、volumes,but we do not expect any material updates on 2019 guidance until 3Q19 earnings in October.Included in the document are specific questions for companies categorized by topic as well as broad themes relevant for an entire group within transports;see page two for a listing of companies covered
5、in this note.2North America Equity Research03 September 2019Brian P.Ossenbeck,CFA(1-212)622- Table of ContentsParcel Carriers.3FedEx(FDX,$172,N).4United Parcel Service(UPS,$114,N).6Railroads.8Canadian National(CNR CN,C$125,N).9Canadian Pacific(CP,C$345,OW).10CSX(CSX,$83,OW).11Kansas City Southern(KS
6、U,$136,N).12Norfolk Southern(NSC,$220,OW).13Union Pacific(UNP,$176,N).14Truckload Carriers&Brokers.15C.H.Robinson(CHRW,$82,N).16Echo Global(ECHO,$22,OW).17Schneider National(SNDR,$20,N).18Werner Enterprises(WERN,$32,UW).19Knight-Swift Transportation(KNX,$38,N).20Heartland Express(HTLD,$19,UW).21U.S.
7、Xpress(USX,$6,OW).22Intermodal.23J.B.Hunt(JBHT,$106,N).24Hub Group(HUBG,$51,N).25Logistics<L.26XPO Logistics(XPO,$82,OW).27Ryder(R,$52,UW).283North America Equity Research03 September 2019Brian P.Ossenbeck,CFA(1-212)622- Parcel CarriersKey questions and themes for the groupCan residential stop den
8、sity materially increase in the U.S.without assuming more people pick up packages themselves?Is it reasonable to assume customer expectations and behaviors will shift to buy online and pick-up in store faster than the rate of B2C growth?Are shippers beginning to send packages directly to access poin
9、ts and stores for pick-up?Are retailers offering more“hard dollar”incentives for consumers to pick up instore or take a home delivery at a slower,less expensive shipping speed?Why has Amazon Day failed to gain traction with a day of the week shipment chosen by the consumer that is still a residentia
10、l delivery?Major carriers and their partners have access points within five miles of the majority of the U.S.population,does ease of use matter more than proximity?How are these locations designed to attract and increase residential activity?Will there eventually be a delivery charge for a residenti
11、al B2C package?Shipping speeds continue accelerating with the recent launch of One Day Prime,is the U.S.parcel network planning for same day delivery at scale?What are the implications for demand in peak season and beyond of Amazon adding another day to Prime Day this year?What are the expectations
12、for the USPS competitive product rate hike in 2020?The majority of SMB market share gains appear to have come from the USPS,what strategic actions could this carrier implement to defend these volumes?Are there any legislative initiatives expected to address the long-term financial viability of the U
13、SPS after the 2020 election?Will USPS costs,and therefore rates,move higher with Amazon delivering more of its own volumes while FedEx diverts SmartPost back to the Ground network?Is it possible to expand operating margins in percent terms and grow B2C volumes?Or is the goal to improve operating pro
14、fit in dollars?Have volumes already shown the impact of the Brexit overhang in October and continued U.S./China trade tensions,or is a further drag likely?What are the near and long term strategies for expanding B2B e-commerce?How have the regional carriers adapted to a continued push for faster del
15、ivery speeds traveling shorter distances?Does this theme benefit a regional model disproportionately compared to the larger integrators?How would the U.S.withdrawal from the UPU affect import and export volumes from foreign posts as well as the cost of delivering domestic e-commerce?The trade-weight
16、ed US$benchmark is at an all-time high,what are the implications for international shipments and supply chain sourcing?Have there been any significant capacity adjustments made to international air networks in response to the current macro environment?4North America Equity Research03 September 2019B
17、rian P.Ossenbeck,CFA(1-212)622- FedEx(FDX,$172,N)Trade&MacroHas there been any noticeable impact from Chinas banned entity list?What is the overall exposure to China and Asia Pac region?The international economic outlook appears softer than when the initial FY20 guide was provided in June,how sensit
18、ive is Express to slower European growth?FinancialsWhat were the factors behind the additional$450mm investment that brings the total at Memphis to$1.5B+by 2025?Was this for an expanded scope at the hub?What are the drivers behind the FY20 guidance for positive free cash flow when operating income i
19、s down,aside from the lack of an incentive comp payment?Strategy&OperationsHow will the company become the low cost e-commerce carrier?Is this goal something FedEx can achieve independently or will it need help from higher USPS rates and increasing delivery to access points and retail stores?Does th
20、e company have specific initiatives to grow B2B e-commerce?What will the recent acquisition of Cargex add to FedEx Logistics?What are some of the potential tech advancements on the horizon?Are they expected to provide significant gains or will they primarily offset inflation?Can the Express and Grou
21、nd networks be combined in the U.S.?If not,what operational synergies are possible between the two including shared line haul?How have efforts to gain market share among SMBs fared?Has competition increased recently?Are they more price sensitive or do they have brand loyalty?The strategic direction
22、of FedEx appears to be in a greater contrast with UPS than recent years with the pursuit of a low cost carrier status in the U.S.with a greater emphasis on volume-was this a planned pivot and point of differentiation,or one more pre-determined by the network structure and past investments?The compan
23、y has publicly distanced itself from Amazon by letting its contracts expire,will working with large retailers prove to be any less challenging?How is the Ground network running with six day a week service?Why launch seven days so quickly after six?Are there any minimum commitments for shippers in or
24、der to be eligible for the expanded seven day service?ExpressWhat does“right-sizing”the Express network entail?Is it already underway?Has there been a noticeable impact from the rollout of FedEx Extra Hours?What are the potential incremental margins and volume opportunity on this service?How will th
25、e 700 flexible rural and residential drivers function within the Express network?Will they work specifically with any shippers?What type of packages and services are they providing?Are they paid like gig employees”?USPS volume growth has been decelerating over the last several quarters in packages&s
26、hipping,how does this affect the day sort capacity utilization?5North America Equity Research03 September 2019Brian P.Ossenbeck,CFA(1-212)622- Excluding fuel tailwinds,favorable incentive comp of$285mm and TNT integration expenses,why were margins as weak as they were in FY19 despite a relatively st
27、rong airfreight market?TNTWhat does the roadmap for integration look like through FY20 and FY21?Whatare the remaining milestones of significance?Why did integration costs through FY21 move up in the latest forecast by another$200mm?What areas have seen the biggest need for additional investment?Grou
28、ndHow is the diversion of SmartPost back into the Ground network progressing?When will more rail service become part of lowering the SmartPost cost profile?What savings are expected from insourcing Smartpost packages?Is the 2mm per day target the ceiling or could the company eventually bring more vo
29、lume onboard in an effort to build scale and supplant the USPS?How will this business evolve over time to handle lighter weight packages going shorter distances?Where does the operating leverage come from when a large component of the cost structure is variable and tied up in the ISP model?FreightHo
30、w is the Freight Direct final-mile delivery service progressing in additional markets?What is the potential mix between third-party and company employees?Is a dual-service offering still the proposed strategy?How has the LTL market reacted to a looser truckload market?Is YoY revenue growth reasonabl
31、e for Freight in FY20 given ongoing volume pressure and a difficult truckload pricing environment?The industry has been largely a paper-based business,what operating efficiencies or back office productivity initiatives are underway within Freight?Disruption&TechnologyWill competition from regional a
32、nd non-traditional parcel carriers increase over time?For example,Lufthansa Cargo recently launched an e-commerce unit that is“combining airfreight and last mile delivery”.What factors are currently driving electric vehicle adoption?How has the roll-out with Chanje in California progressed within Ex
33、press?How far away from commercial utilization is the FedEx Bot?Where are the next areas within the network where automation could benefit FedEx?Is the technology ready for loading and unloading trailers?What are the specific implications of Amazons one day shipping initiative if it is broadly adopt
34、ed by other retailers?How can FedEx benefit from this trend and what changes or investments are needed?6North America Equity Research03 September 2019Brian P.Ossenbeck,CFA(1-212)622- United Parcel Service(UPS,$114,N)Trade&MacroHave the international operations prepared for a potential hard Brexit?Wi
35、ll the global air network be right sized to match a weaker economic outlook?After over a year of trade tensions between the U.S.and China,sentiment has been damaged but has there been a noticeable shift in global supply chains?FinancialsExtending the useful life of assets has created significant D&A
36、 tailwinds,including$335mm in 2019 after$286mm in 2018.Will these adjustments continue in 2020 based on the accounting changes to date?The US$is at record levels on a trade-weighted basis,will FX volatility still remain less of a headwind in 2H19 compared to last year?Will lower fuel and purchased t
37、ransportation provide a material boost in 2H19?The U.S.Domestic operations will not impose a peak season surcharge on residential deliveries this year,how much of a headwind will this create YoY?What is the sensitivity of pension expense to changing interest rates?U.S.DomesticHas the segment benefit
38、ed from the majority of the favorable D&A adjustments over the last two years?Did fuel have a similar tailwind?What factors will determine if yields grow faster than unit costs in dollar terms during 2020?Will the pace of investments represent the largest swing factor?How much more efficient are the
39、 new hubs at small package sorts compared to the legacy facilities when fully ramped to capacity?How does the segment determine if it has reached critical mass in terms of access point coverage with retail partners?Will utilization rates ever be disclosed?Why was the scope of seven day delivery sche
40、duled to begin January 1,2020 limited to access points or final mile drop-off by the USPS?How have the new initiatives and services such as My Choice for Business and extended hours for next day ground been received with the initial roll-out?The company protected its right to implement“operating tec
41、hnology”as part of the new labor deal,has this been deployed in the field already?When will the new class of combination drivers begin to roll-out across the U.S.network?What are the restrictions and potential savings upon implementation?What are the implications of Amazon consolidating returns into
42、 larger boxes at the UPS Stores before shipment?Is this a favorable development for UPS?InternationalHow has the new cross-border e-commerce product been received when compared to other affordable option for postal services?Can UPS continue to gain market share in Europe while maintaining or expandi
43、ng margins?What is driving the expected positive mix in 2019?7North America Equity Research03 September 2019Brian P.Ossenbeck,CFA(1-212)622- Does the recent weakness in semiconductors present a challenge for volume and mix,or is this indicator no longer an approximation of international activity?How
44、 are the new investments in Europe progressing relative to expectations?Supply Chain&FreightHow has the LTL market reacted to a looser truckload market?Did Freight benefit from spillover volume last year which is at risk of reverting?Has the Forwarding operation seen any anticipation or reaction to
45、IMO 2020?What do major shipping customers expect will happen with the new standard?How has Coyote performed during the recent stretch of freight market volatility?What are the primary drivers behind the guidance for operating income growth?Transformation,Strategy&OperationsWill the increased activit
46、y from the first Prime Day to span two days and the spending surge in one-day Prime become sustainable business for UPS in 2020?How are some of the recently announced strategic partnerships such as Inxeption and Optoro driving additional B2B e-commerce growth?Are any other senior leadership changes
47、contemplated at this point?How will the new CFO contribute to the objectives and goals of the organization?Is capex still expected to decline to 6%of revenue after 2020?What risk factors could trigger another multi-year spike in capital spending?Does the integrated network have an increased probabil
48、ity of co-mingling volume with more packages moving shorter distances but with similar destinations?Were the recent initiatives by FedEx expected?What are the long termimplications of a major competitor aiming to be the low cost e-commerce carrier?Disruption&TechnologyWhat is a realistic timeline fo
49、r drones to enter commercial service at scale?How will UPS be differentiated in a crowded field?Is the largest hurdle to implementation the technology or regulations and social acceptance?Has the opioid crisis impacted the potential of home healthcare delivery?What is the benefit of taking a minorit
50、y ownership stake in TuSimple as opposed to testing AV at commercial scale similar to other carriers such as the USPS?Will UPS unveil a delivery option for heavy home goods or partner with another company to provide the service?8North America Equity Research03 September 2019Brian P.Ossenbeck,CFA(1-2
