Shares of United Parcel Service Inc. (UPS) and FedEx Corp. (FDX) jumped 3.8% and 3.3%, respectively, Tuesday following a fiery tweet by President Donald Trump indicating that the traditional courier delivery services companies should charge more for their services. The president openly criticized the U.S. Postal Service via his widely followed Twitter account, indicating that the Post Office is charging Amazon.com Inc. (AMZN) and others too little to deliver their packages.
Trump suggested that USPS is making the Seattle-based retail giant “richer and the Post Office dumber and poorer.” (See also: FedEx, UPS Can Beat Amazon Delivery Entry: Goldman.)
Any Rate Hike Would Prove Significant
In response to the White House tweet, analysts at Bernstein wrote a research note indicating that given that the USPS sets the floor for prices for commercial delivery services, if it ends up it raising rates for e-commerce companies like Amazon, it should help boost UPS and FDX stock.
Bernstein’s David Vernon and team stated that this is the tweet UPS and FDX “have been waiting for.” Bernstein estimated that UPS and FDX generated up to $20 billion and $11 billion, respectively, in revenue from domestic business-to-consumer (B2C) deliveries last year, “making any rate tailwind on this large base significant.” But a tweet is not a law, and the Bernstein team suggested that investors wait for the administration to follow up on the issue. One angle could be to pressure the Postmaster General to change strategy and raise rates more aggressively.
Last month, analysts at Morgan Stanley applauded the Amazon’s recent expansion into the delivery space, calling its new Seller Flex program a logical next step for the company as it begins to lessen its dependence on UPS and FedEx. Morgan Stanley’s Brian Nowak wrote that Amazon “seemingly confirmed” in its recent third-quarter earnings call that it can be up to two-thirds cheaper than legacy parcel in terms of average revenue per unit at similar delivery density. (See also: Amazon’s Next Step: Reduce Reliance on UPS, FedEx?)