The transportation sector refers to the general category of stocks relating to the transportation of goods or customers. The transportation sector is vast and comprises a wide range of individual industries, including major and regional airlines (also known collectively as air services), railroads, shipping firms, ocean freight haulers, trucking and firms more indirectly related to transportation such as supply chain management firms and other logistics providers.

Transportation Industry Overview

In aggregate, the value added by the transportation industry as a percentage of U.S. GDP was 3% as of 2012. This average has been steady since approximately 1998. As you might imagine, the sector is economically sensitive and driven primarily by overall economic trends in the U.S. and world. When consumers and businesses spend less, the transportation industry suffers. Conversely, transportation firms see increases in activity when the economy is improving or in full swing at the business cycle's peak.

The Key Players

Each industry in the transportation sector contains a few key, dominant players. The Dow Jones Transportation Index is a leading sector index that contains 20 “blue chips” or dominant, bellwether firms, which are listed below:

Ticker Company
NYSE:ALK Alaska Air Group
Nasdaq:CHRW C.H. Robinson Worldwide
NYSE:CSX CSX Corp.
NYSE:CNW Con-way
NYSE:DAL Delta Air Lines
Nasdaq:EXPD Expeditors International of Washington
NYSE:FDX FedEx
NYSE:GMT GATX
Nasdaq:JBHT J.B. Hunt Transport Services
Nasdaq:JBLU JetBlue Airways
NYSE:KSU Kansas City Southern
NYSE:KEX Kirby
Nasdaq:LSTR Landstar System
NYSE:MATX Matson
NYSE:NSC Norfolk Southern
NYSE:R Ryder System
NYSE:LUV Southwest Airlines
NYSE:UNP Union Pacific
NYSE:UAL United Continental Holdings
NYSE:UPS United Parcel Service

Additionally, the S&P Transportation Select Industry index provides information about the sector. The average market capitalization for the 42 key players in the index is $9 billion and ranges from $400 million to $82 billion. This indicates the sector is diverse overall, though the top players in the Dow Jones Transportation Index exert outsized influence on total sector trends.

S&P TRANSPORTATION SELECT INDUSTRY INDEX
Number of Constituents 42
Inception Date June 18, 2006
CONSTITUENT TOTAL MARKET CAP [US$ MILLIONS]
Maximum Market Cap
81,926.05
Minimum Market Cap
423.22
Mean Market Cap
8,861.79
Median Market Cap
2,543.45

Important Industry Data

The most important data in the transportation industry helps investors gain insight into the movement of goods across the globe. For instance waterway tonnage, as tracked by the U.S. Army Corps of Engineers Navigation Data Center, indicates the monthly tonnage volume of goods traveling across the ocean and other major bodies of water, including the Great Lakes region. Sources such as the Association of American Railroads (AAR) Weekly Rail Traffic Summary provide statistics on the percent change in monthly rail carloads and intermodal units. A review of September 2013 railroad statistics details a 14.4% jump in the transport of petroleum and petroleum products - confirming the increased popularity of hydraulic fracturing, or fracking across the United States.

In similar fashion, truck tonnage indices provided by the American Trucking Association let investors and analysts track activity across the nation’s highways. The sale of U.S. No. 2 diesel prices is another way to track the trucking of goods, though in a more indirect manner because of the need to extrapolate fuel usage into actual goods shipments. But overall, increased trucking bodes well for trucking firms and the economy in general. The Institute for Supply Management (ISM) provides manufacturing details and reported in October 2013 that supplier deliveries grew a very modest 0.2%, but the pace of deliveries is slowing and has been doing so for a couple of months straight.

Factors Analysts and Investors Need to Know

Michael Porter’s five competitive forces model is a great way to analyze any industry. Applying it to a specific segment of the transportation industry, the airline space, easily demonstrates why it is such a difficult business to compete in. Suppliers' bargaining power is immense because two firms, Boeing (NYSE:BA) and Airbus, provide the bulk of large aircraft to the world’s major airlines. Planning costs can easily run into the tens of millions of dollars and make switching costs quite high. Rivalry among existing players is very intense, because airline travel is basically a commodity where rivals compete primarily on price. The threat of substitutes is also high and consists of any type of travel, though this is less of a concern for long-haul flights where there are really no substitutes to the speed and convenience of traveling by airplane. The only real positive from a competitive perspective is the limited bargaining power of the millions of individual flyers that have little collective ability to demand improved airline service and on-time flights.

It is also important for investors and analysts to track industry trends. For instance, at one point airlines that traveled to and from Taiwan faced a shortage of airport slots at mainland Chinese cities, which indicated that economic activity between the two countries remained robust and indicated an investment opportunity to an astute investor. Also in the airline space, mergers among large players have historically come across opposition from antitrust regulators who fear that individuals will be exposed to higher prices and worse service with too much consolidation (and supplier power) in the airline industry. And when firms in the automotive space have their investment grades lifted by credit rating firms, this generally indicates strength in the domestic and global automotive industry.

A Brief Example

Returning briefly to the airline industry, on Sept. 9, 2013, United Airlines reported that its revenue per passenger mile, or key determinant of flying traffic, decreased 0.5% while consolidated capacity, a measure of available seat miles, fell 1.4% in August. The data confirmed that overall economic activity remained tepid as the global economy tried to shake off the recession caused by the credit crisis. In a presentation to investors around the same time, United Airlines detailed that the industry is transforming in the midst of anemic GDP growth, which is being driven by less fragmentation (more consolidation), capacity discipline that is helping maintain seat pricing, and the addition of new revenue streams such as charging for checking bags or obtaining more comfortable seats. Firms that operate international flights also have an advantage because these are highly profitable and coveted routes. Yet despite the strong industry trends, airlines are still highly dependent on economic growth, making analyzing leading indicators and other business activity, such as across other transportation firms, an important part of the overall analysis.

The Bottom Line

The transportation sector consists primarily of transporting goods across the global economic supply chain. A secondary service consists of transporting individuals around the world through airlines, railroads, boats, cars and any other transportation mode. The Dow Jones Transportation Index is a great way to gain insight into the dominant industry players that compete in every main industry within the transportation sector. By gaining an awareness of the bellwether firms and trends that affect these players, investors and analysts can gain an edge by analyzing the sector and looking to profit from understanding it.

Related Articles
  1. Investing

    How To Analyze Restaurant Stocks

    Don't put your money on the table before getting a taste for analyzing this sector.
  2. Fundamental Analysis

    How To Value An Internet Stock

    An academic study, published several years after the peak of the dot-com bubble in March 2000, accurately described just how whacky internet valuations grew until the bubble burst. The study's ...
  3. Fundamental Analysis

    Investing In Healthcare Facilities

    Read on to learn about how to value heathcare sector stocks.
  4. Fundamental Analysis

    How To Value An Insurance Company

    In the insurance space, accurate predictions of metrics such as ROE are important, and paying a low P/B can help put the odds in investors' favor.
  5. Home & Auto

    How To Value A Real Estate Investment Property

    Make sure you know what your real estate investment is worth before you sign the ownership papers.
  6. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  8. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  9. Stock Analysis

    Fortinet: A Great Play on Cybersecurity

    Discover how a healthy product mix, large-business deal growth and the boom of the cybersecurity industry are all driving Fortinet profits.
  10. Stock Analysis

    2 Catalysts Driving Intrexon to All-Time Highs

    Examine some of the main reasons for Intrexon stock tripling in price between 2014 and 2015, and consider the company's future prospects.
RELATED TERMS
  1. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  3. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  4. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  5. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  6. Long-Term Debt

    Long-term debt consists of loans and financial obligations lasting ...
RELATED FAQS
  1. Why should I invest in the railroads sector?

    Railroads are the backbone of the commercial transportation system in North America. They transport about 40% of the freight ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  5. How can EV/EBITDA be used in conjunction with the P/E ratio?

    Because they provide different perspectives of analysis, the EV/EBITDA multiple and the P/E ratio can be used together to ... Read Full Answer >>
  6. How can a company reduce the unsystematic risk of its own security issues?

    Companies can reduce the unsystematic risk of their own security issues simply by doing the most effective job possible of ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!