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Speaker 1: Hi everyone, this is Lee Klaskal when We're Talking Transports.

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Speaker 1: Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,

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Speaker 1: Lee Klaskows, Senior Freight transportational logistics analysts at Bloomberg Intelligence,

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Speaker 1: Bloomberg's in house research arm of almost five hundred analysts

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Speaker 1: and strategists. This is our first episode in twenty twenty five,

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Speaker 1: so I want to wish everyone a very happy, healthy,

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Speaker 1: and prosperous new year. We're excited about the fantastic guests

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Speaker 1: we have lined up for you this year. Before diving

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Speaker 1: in a little public service announcement, your support is instrumental

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Speaker 1: to keep bringing great guests onto the podcast, and we

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Speaker 1: need your support. So please, if you enjoy this podcast,

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Speaker 1: share it, like it, and leave a comment. Also, if

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Speaker 1: you have any ideas for future episodes, or just want

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Speaker 1: to talk transports, please sit me up on the Bloomberg terminal,

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Speaker 1: on LinkedIn or on Twitter at Logistics Lee. Now on

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Speaker 1: to our episode. I'm really excited to have Robbie Shanker

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Speaker 1: back on the podcast. Robbie is Managing director and lead

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Speaker 1: analysts for North America Freight Transportation and Airlines at Morgan Stanley.

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Speaker 1: He's been with Morgan Stanley for about two decades and

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Speaker 1: has been covering transport since twenty sixteen. Prior to covering transports,

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Speaker 1: Rabie led coverage of North America autos. He holds a

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Speaker 1: Bachelor of Commerce and Master of Management degrees from the

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Speaker 1: University of Mumbai. Welcome back to the podcast RABI. Happy

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Speaker 1: New Year, Happy.

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Speaker 2: Early, Happy earlier listeners. Well, thanks so much for having me.

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Speaker 1: Yeah, so you know, we're talking here the first week

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Speaker 1: of January. For analysts, that means we're heading into earning

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Speaker 1: season for the fourth quarter. Kind of what are the

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Speaker 1: major trends are you looking for going into earning season

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Speaker 1: in the coming weeks.

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Speaker 2: Yeah, I think it should be another very interesting year

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Speaker 2: for the transportation space. I think it's gonna be an

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Speaker 2: interesting quarter of a transportation space. We think that four

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Speaker 2: Q of twenty four was probably the best quarter this

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Speaker 2: industry has had in two years, because speak season actually

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Speaker 2: showed up and was fairly consistent with expectations. Nothing to

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Speaker 2: write home about or prop the champagne over, but certainly

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Speaker 2: better than the basically nothingness we've had over the last

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Speaker 2: two years. And so I think that's gonna be a

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Speaker 2: little bit of a tailwind in the sector sales. The

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Speaker 2: question is how much of that can continue into twenty

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Speaker 2: five given the restocking trends and geopolitical events and everything

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Speaker 2: else you's seeing around us. So the question is going

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Speaker 2: to be how much did four Q actually help numbers

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Speaker 2: and how much of that continues through twenty five?

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Speaker 1: Right? And I know for myself, I days, you know,

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Speaker 1: going into the quarter, you like to have analysts, like

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Speaker 1: to have some kind of near term calls how to

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Speaker 1: try to trade around results. What are you telling clients

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Speaker 1: going into the quarter. Do you have any like, you know,

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Speaker 1: stocks that you're kind of really positive on going into earnings?

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Speaker 2: We do, so we put five calls into our four

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Speaker 2: Q earnings preview. Some of them are negative catalysts, some

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Speaker 2: of them are positive catalysts. On the cautious side, we

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Speaker 2: have GXO ups and some of the expensive LTL carriers

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Speaker 2: where we think numbers have some risk in twenty twenty five.

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Speaker 2: But on the positive side, we have CP among the

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Speaker 2: rails and also Night on the TL side, I think

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Speaker 2: Night in particular really stands out because they really should

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Speaker 2: benefit from that pretty solid peak season just seasonality wise

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Speaker 2: in the fourth quarter, and some of the project business

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Speaker 2: that emerged as well, but also Night is sort of

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Speaker 2: viewed as this bell weather for the rest of the space,

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Speaker 2: especially trucking, and how Night sounds on twenty twenty five,

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Speaker 2: we think is going to be pretty important for sentiment

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Speaker 2: across the rest of the industry. In the recent last

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Speaker 2: year or so, Night has basically been guiding to base seasonality.

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Speaker 2: But if they sound pretty decent on the numbers going forward,

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Speaker 2: I think that should be kind of a shot in

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Speaker 2: the arm for the entire space. I think one of

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Speaker 2: the big themes that we've highlighted for the fourth quarter

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Speaker 2: is that there appears to be this gap between the

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Speaker 2: perception of the cycle, with both investors and the industry

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Speaker 2: still believing that the cycle sucks for want of a

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Speaker 2: better word, but the actual data that we track has

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Speaker 2: looked really good for the back half of twenty four

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Speaker 2: and has accelerated since October. R Telofindex actually has been

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Speaker 2: doing incredibly well to NBR trucks portraits are up quite shortly,

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Speaker 2: and so all signs point to Earning's momentum in twenty five,

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Speaker 2: which is not quite reflected in investors and management team

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Speaker 2: sentiment just yet. So we expect that gap to close

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Speaker 2: in the fourth quarter, all.

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Speaker 1: Right, And for those that don't know, night Swift ticker

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Speaker 1: KNX or about a nine billion dollar market cap, and

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Speaker 1: census expectations are for their earnings in the fourth quarter

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Speaker 1: to be thirty three cents. That's up around two hundred

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Speaker 1: and seventy percent versus the fourth quarter twenty twenty three.

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Speaker 1: But that's that's really uneasier comparisons because a lot of

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Speaker 1: a lot of noise in the fourth quarter of last year.

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Speaker 1: You know, you mentioned kind of not to go back

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Speaker 1: to the negative catalyst, but you know, UPS was is

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Speaker 1: a household name. Obviously everybody knows why are you negative

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Speaker 1: going into the quarter on ups especially since you know

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Speaker 1: the fourth quarter tends to be, you know, one of

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Speaker 1: the busiest quarters given the holiday season.

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Speaker 2: I think we did have a pretty good peak season,

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Speaker 2: and I think that will be reflected in their numbers.

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Speaker 2: So I do think that earnings will step up from

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Speaker 2: three year to FOURTHO. The question is what that will

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Speaker 2: look like versus expectations, because their implied guidance does point

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Speaker 2: to a very steep ramp in earnings from three Q

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Speaker 2: to four Q. So while peak season was good, keep

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Speaker 2: in mind that it was also one of the most

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Speaker 2: compressed peak seasons, like the calendar allows. Technically the last

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Speaker 2: time we had peak season this compressed was twenty nineteen,

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Speaker 2: and compressed peak seasons can also be difficult and expensive

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Speaker 2: to execute. And also on the last conference called CEO,

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Speaker 2: character May had mentioned that because of the compressed nature

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Speaker 2: of peak season, some of their customers are sort of

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Speaker 2: pushing you and me to go to click and collect,

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Speaker 2: so buy online and pick up in store rather than

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Speaker 2: buy through e commerce entirely, and that may have a

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Speaker 2: little bit of a kind of share implication as well.

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Speaker 2: So we to expect them to have a good quarter,

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Speaker 2: the question is going to be as good as people think.

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Speaker 2: And also we think some of the competitive risk and

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Speaker 2: kind of market risk that we've seen for some time

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Speaker 2: in the e commerce space kind of will extend into

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Speaker 2: twenty twenty five as well once we get past the

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Speaker 2: speak season, and so it'll be interesting to see where

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Speaker 2: twenty twenty five guidance shakes out relative expectations.

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Speaker 1: Yeah, so the parcel carriers are pretty much underperform the

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Speaker 1: broader market. They've also underperformed most of the transportation sub

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Speaker 1: segments that we follow. What does UPS and FedEx kind

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Speaker 1: of have to do for you know, investors to feel

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Speaker 1: a little more positive about their stocks.

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Speaker 2: Look, it's a good question, Huh. I think the street

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Speaker 2: is now coming towards our view that e commerce parcel

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Speaker 2: delivery may have some structural challenges as a business. You know,

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Speaker 2: everybody expects free shipping these days, and it's very hard

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Speaker 2: to get pricing. Are the end consumer when you expect

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Speaker 2: shipping to be free. At the same time, supply chains

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Speaker 2: the e commerce side in particular are getting shorter, faster,

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Speaker 2: and tighter, and so you have to have better and

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Speaker 2: better service with lesser or lesser cost because again we

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Speaker 2: wanted to be free. Uh. And that is driving a

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Speaker 2: very regional, hyper local supply chain on the e commerce

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Speaker 2: side with very short haul uh you know, truck and

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Speaker 2: van based delivery out of local stores or distribution centers,

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Speaker 2: which may not be uh you know, the the meat

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Speaker 2: of the long haul middle mile uh delivery market that

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Speaker 2: UPS and FedEx build their business models kind of around,

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Speaker 2: uh several decades ago. Uh So they need to pivot

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Speaker 2: with the rest of the market. And it's unclear if

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Speaker 2: UPS and FedEx can build a business around last mile

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Speaker 2: delivery alone.

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Speaker 1: Uh.

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Speaker 2: So they're taking slightly different approaches to the problem. UPS

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Speaker 2: is focusing on healthcare and some high value added end

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Speaker 2: markets within parcel delivery UH. FedEx is looking to cut

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Speaker 2: cop very aggressively through their Drive program. The question is

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Speaker 2: whether both of these initiatives will be able to offset

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Speaker 2: you know, what we see as structural pressures in the

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Speaker 2: core e commerce partal business. I mean that is DBD

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Speaker 2: in the coming years.

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Speaker 1: Right in, Your coverage is a little different than most

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Speaker 1: of your you know, sell side peers because you do

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Speaker 1: include the airline, So you probably have an interesting perspective.

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Speaker 2: You know, the.

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Speaker 1: Tricolor strategy that FedEx is trying to do by you,

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Speaker 1: do you think that's a winning strategy? Do you are

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Speaker 1: you kind of optimistic that I'll get the results that

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Speaker 1: they're looking for.

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Speaker 2: Look, I think it comes down to the age old

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Speaker 2: debate between you know, build versus buy or rent versus own.

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Speaker 2: I don't think there's any clear answer one way or

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Speaker 2: the other that one is better than the other. I

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Speaker 2: think it depends on what the market is doing and

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Speaker 2: how well you pull that lever or not. I think

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Speaker 2: it will be beneficial to them in terms of asset

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Speaker 2: intensity and ROI c to kind of downsize their network

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Speaker 2: and kind of use more third party assets for line haul.

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Speaker 2: At the same time, it does remove some of the

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Speaker 2: control that they have over service and leaves them potentially

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Speaker 2: vulnerable to cost inflation, especially as we go into an upsycle.

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Speaker 2: And so I don't think there's a definitive answer one

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Speaker 2: way or the other whether that's a good thing or

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Speaker 2: a bad thing. I think we'll have to see how

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Speaker 2: the cycle evolves and how the market kind of evolves

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Speaker 2: over time as well. I think we've published shorts to

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Speaker 2: show that the air freight business was an overcapacitized industry

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Speaker 2: prior to the pandemic, has had a lot more capacity

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Speaker 2: come in and so should be overcapacitized, especially once passenger

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Speaker 2: belly capacity from Asia to the US normalized as well.

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Speaker 2: And so it remains to be seen whether this is

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Speaker 2: going to be a net positive or negative once everything

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Speaker 2: shakes out in terms of both demand and supply.

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Speaker 1: Right, and one more in FedEx obviously, they announced recently

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Speaker 1: that they're planning on, you know, probably getting rid of

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Speaker 1: FedEx freight. What do you see that kind of looking

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Speaker 1: like and do you think it's a good strategic decision

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Speaker 1: by management?

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Speaker 2: I think Okay, we need more information to come to

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Speaker 2: a definitive conclusion there. I think there's still a lot

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Speaker 2: more that we need to know in terms of what

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Speaker 2: is the pure kind of non FedEx standalone revenue based

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Speaker 2: for the LTL business?

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Speaker 1: Uh?

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Speaker 2: You know, what is the what are the terms of

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Speaker 2: the ongoing long term contract between FedEx parcels versus fed

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Speaker 2: x ltl. Uh. They kind of spoke about hiring I

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Speaker 2: think three hundred vals people and investing in tech and such.

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Speaker 2: I think corporate costs need to come up as well

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Speaker 2: once you become a stand alard public company. So what

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Speaker 2: does the normalized margin look like once fed X LTL

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Speaker 2: is spun off? We don't know the answer to that.

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Speaker 2: They've said that the transaction is going to take eighteen months.

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Speaker 2: Were not a huge surprise because these things are complex,

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Speaker 2: But eighteen months is a very long time in the

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Speaker 2: markets time horizon these days. Again, I'm sure your podcast

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Speaker 2: is going to be going all guns eighteen months from now,

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Speaker 2: but I bet we'll kind of credict what the topics

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Speaker 2: of discussion might be eighteen months from now. The kind

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Speaker 2: of biggest surprise to me actually was that they're not

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Speaker 2: changing the name of the company. I've never seen a

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Speaker 2: company spun out of another one and the name being

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Speaker 2: kept the same. Usually it's kind of a sign of, hey,

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Speaker 2: you're it's a fresh start, and so you kind of

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Speaker 2: come up with a name that's as differentiated as you

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Speaker 2: possibly can be from the old company. And yet they're

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Speaker 2: calling it for X the LKL, which maybe implies that

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Speaker 2: the kind of connections are going to be as as

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Speaker 2: like the relationship has been is going to be what

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Speaker 2: it's always been going forward. And so, yeah, we'll see

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Speaker 2: how this evolved over the next eighteen months, and I'm

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Speaker 2: sure we're going to get more information as they kind

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Speaker 2: of progress with the transaction.

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Speaker 1: Right And for those that know FedEx Freight is, you know,

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Speaker 1: FedEx is one of their smaller segments. It's their less

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Speaker 1: than truckload business or LTL business. It's actually the largest

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Speaker 1: North America LTL provider with revenues of nine ten billion dollars.

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Speaker 1: And you know, a lot of folks were kind of

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Speaker 1: wanting them to spin out the company because less than

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Speaker 1: truckload carriers tend to trade at a higher multiple than

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Speaker 1: parcel carriers, so they're looking to kind of unlock some

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Speaker 1: value there for shareholders. You know, you did mention, you

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Speaker 1: know when we were talking about you know, LTL carriers

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Speaker 1: are being a little expensive. Now, can you kind of

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Speaker 1: expand on that a little bit? You know, what do

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Speaker 1: you see there and and why do you come to

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Speaker 1: the conclusion that they're a little expensive.

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Speaker 2: Absolutely, so, I don't think it's true across the LTL space,

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Speaker 2: But there are some companies and going we pointed outside

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Speaker 2: and Xcolar with the stocks have done really well over

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Speaker 2: the last eighteen months, but at the same time, earnings

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Speaker 2: have not necessarily kept pace with the stock prices, and

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Speaker 2: so their multiples have significantly expanded. Our numbers kind of

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Speaker 2: implying over thirty times PE. And that price to earnings

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Speaker 2: ratio has historically been between fifteen and twenty times for

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Speaker 2: the LTL space. I mean, ODFL, obviously, being the industry

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Speaker 2: leaner on margins and the compounding earnings growth, has treated

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Speaker 2: at a significant premium to peers over the years. But

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Speaker 2: you know, eight to ten years ago, when ODFL was

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Speaker 2: trading at twenty times PE, everybody thought that that was

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Speaker 2: really expensive, even for a company of the quality of ODFL.

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Speaker 2: Today's cy and XBO are trading at over thirty times

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Speaker 2: when they don't have the same margin or you know,

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Speaker 2: we'll see what the long term growth prospects are, but

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Speaker 2: it's still a fair bit way to say that ci

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Speaker 2: xto or the next ODFL. So I think the market

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Speaker 2: may have gotten a a little bit too excited and

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Speaker 2: enthusiastic with some of these ltls. Now, again, make no mistake,

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Speaker 2: I'm a structural trucking bow. I have been for the

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Speaker 2: entire time I've covered the space probably before anybody else

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Speaker 2: was a bull on trucking relative to the rails. I

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Speaker 2: like both the TLS and the ltls. I'm a cycle bow.

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Speaker 2: I think the ltls will do pretty well in twenty

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Speaker 2: twenty five as the restocking bills and the cycle comes back.

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Speaker 2: But it just feels like some of the earnings expectations

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Speaker 2: built into a couple of these LTL names, particularly Say

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Speaker 2: and XBO, are a little bit too high. Again, I

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Speaker 2: have no problem with the companies Themselveing, the management teams

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Speaker 2: are great, and I think their strategy they're going to

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Speaker 2: market strategies is all correct. It it's just what's priced

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Speaker 2: in the stocks that, you know, makes it a little

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Speaker 2: more cautious. They are relatively speaking.

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Speaker 1: Right, and so you know, your your ratings are not

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Speaker 1: necessarily buy and sell. They're kind of like overweight and underweight.

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Speaker 2: Correct, it's all relative.

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Speaker 1: Okay, it's all relative. So you might be owners of

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Speaker 1: some of the LTL names, but just not not as

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Speaker 1: much as some of the other names.

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Speaker 2: We would be owners of some of the cheaper ltls

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Speaker 2: like an arch Best or a TFI or even a

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Speaker 2: Knight if you consider a Night to be an lt L,

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Speaker 2: given that they have built a fairly sizable LTL business,

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Speaker 2: But we would be more underweight some of the more

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Speaker 2: expensive ltls like a C I r.

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Speaker 1: XBO, right, and so not to make this the night

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Speaker 1: you know show, I think maybe Adam Miller over there

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Speaker 1: might like is talking more about the name. But you know,

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Speaker 1: you did mention that the fact that they're building an

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Speaker 1: lt L business. You know, LTL is a lot more

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Speaker 1: attractive for companies because it's a lot more consolidated market

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Speaker 1: and they're going to be helping out in that consolidation.

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Speaker 1: Can you talk about, you know, what lt L provide

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Speaker 1: night Swift over the long term as they build this

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Speaker 1: national network.

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Speaker 2: Would be really interested to see is it is very

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Speaker 2: excited about the revenue synergies between their TL and LTL business. Now,

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Speaker 2: conglomerates don't have a great history or track record in

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Speaker 2: this industry, and the days of expecting a one stop

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Speaker 2: transportation shop where some of the parts is greater than

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Speaker 2: the whole is probably behind us, especially after xbo's breakup.

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Speaker 2: But at the same time, that doesn't mean that there

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Speaker 2: aren't cross selling synergies between two very adjacent businesses like

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Speaker 2: TL and LTL, and so if they can introduce their

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Speaker 2: TL customers their LTL business and vice versa, there should

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Speaker 2: be some opportunity for upside there. I'm not a believer that,

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Speaker 2: you know, just buying an LTL business automatically re rates

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Speaker 2: are multiple overtime, but I think that if Night can

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Speaker 2: demonstrate some of these revenue synergies and even some limited

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Speaker 2: cost energies from these transactions they're building, especially once they've

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Speaker 2: built a true national LTL footprint, then I think that

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Speaker 2: the earning stower here could be a lot higher than

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Speaker 2: the market's given them credit for.

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Speaker 1: Yeah, you mentioned Oldman earlier, and you know, their management

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Speaker 1: team and their organizations kind of known as best in class,

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Speaker 1: and that's kind of illustrated by their you know, very

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Speaker 1: high margins relative to its peers. Would you characterize Knight

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Speaker 1: Swift's management is kind of best in class on the

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Speaker 1: truckloat side, I think yes.

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Speaker 2: Now, I think they have had some management changes in

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Speaker 2: the past year, but the quote unquote new management team

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Speaker 2: is also very well known to the street. I think

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Speaker 2: the issue with the CL space is that it has

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Speaker 2: a little bit of a reputation problem with investors, just

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Speaker 2: given the extreme earnings volatility that we have seen through cycles.

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Speaker 2: Especially the last three cycles going back ten years have

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Speaker 2: both been extreme up cycles and extreme down cycles, and

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Speaker 2: that has been reflected in the earning trajectory of these companies.

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Speaker 2: And so I think another reason why Knight who wanted

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Speaker 2: to diversify into the LTL space, was to reduce that

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Speaker 2: earning cyclicality. They try to do the same thing by

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Speaker 2: entering the services business, which turned out to not be

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Speaker 2: a good idea, and this is backed off of that.

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Speaker 2: But I think the management team is recognized by the

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Speaker 2: street for being very cycle smart and trying to stay

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Speaker 2: half a step or one step ahead of where the

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Speaker 2: cycle is going at all times. But I think as

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Speaker 2: a whole, the TL industry needs to convince investors that

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Speaker 2: they can reduce this extreme earning cyclicality for the multiple

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Speaker 2: data rerate higher over time.

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Speaker 1: Got you and you know, when you're looking a little

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Speaker 1: longer term, you know, obviously in a couple of weeks

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Speaker 1: you have a change in the White House. This new

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Speaker 1: administration is a lot more protect talk tariffs, whether it's

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Speaker 1: talking about tariffs or their immigration policy. Can you talk about,

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Speaker 1: you know, how you think the new administration might impact

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Speaker 1: the various subsectors that you cover. Is it going to

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Speaker 1: be good, bead or indifferent or kind of need more information?

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Speaker 2: I think we knew a lot more information on many things,

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Speaker 2: especially kind of where the line is between actionable policy

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Speaker 2: making versus starting point for negotiations. That said, I think

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Speaker 2: if you are the CFO of any company in the

356
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Speaker 2: US that is manufacturing goods overseas, I don't think you

357
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Speaker 2: can afford to wait to see where things shake out

358
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Speaker 2: before you start agag actions. I think you need to

359
00:20:48,760 --> 00:20:53,119
Speaker 2: start moving now, especially to try to build inventory ahead

360
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Speaker 2: of any potential tariffs. And so, in our to any

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Speaker 2: twenty five out club that be published in the middle

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Speaker 2: of December, we did characterize twenty five as potentially being

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Speaker 2: a tale of two halves, where the first half is

364
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Speaker 2: likely to see significant restocking driven by tariff concerns as

365
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Speaker 2: shippers look to build. I don't think they can quite

366
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Speaker 2: build four years of inventry in six months, but I

367
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Speaker 2: think they're going to try their best to do something

368
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Speaker 2: like that. But following that, I think, especially given where

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00:21:27,840 --> 00:21:32,280
Speaker 2: policymaking might settle down, either if nothing happens or if

370
00:21:32,359 --> 00:21:36,879
Speaker 2: something significant happens, there could be payback to that in

371
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Speaker 2: the back half of twenty five or twenty six, where

372
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Speaker 2: there might be either a d stock or even kind

373
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Speaker 2: of a macro slowdown as a result of tariffs or

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Speaker 2: other actions if they result in higher inflation. I mean,

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Speaker 2: that's where we need more information to see what the

376
00:21:54,800 --> 00:21:57,840
Speaker 2: back half looks like. But the first half is almost

377
00:21:57,880 --> 00:22:01,880
Speaker 2: certainly likely to be a early robust up cycle because

378
00:22:02,760 --> 00:22:05,440
Speaker 2: of the urgent need to restock ahead of anything that

379
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Speaker 2: might happen to black off.

380
00:22:07,119 --> 00:22:10,280
Speaker 1: Gotcha. And then you know, speaking of trade and tariffs,

381
00:22:10,960 --> 00:22:15,480
Speaker 1: it's early January. We're having this conversation January twentieth. The

382
00:22:15,680 --> 00:22:18,520
Speaker 1: ports on along the East Coast and golf course the

383
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Speaker 1: Golf coast, the workers may strike. You know which companies

384
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Speaker 1: will be negatively impacted the most from a strike. If

385
00:22:27,240 --> 00:22:29,880
Speaker 1: that actually happens, Big.

386
00:22:29,720 --> 00:22:33,359
Speaker 2: Corporate America, right that that is trying to, like I said,

387
00:22:33,520 --> 00:22:39,040
Speaker 2: rebuild inventory and restock on an expedited basis, will not

388
00:22:39,240 --> 00:22:41,720
Speaker 2: be happy if they're not able to get stuff in

389
00:22:41,840 --> 00:22:45,119
Speaker 2: through the ports. But from a transportation standpoint, I think

390
00:22:45,200 --> 00:22:49,080
Speaker 2: some of the East Coast railroads obviously might have some

391
00:22:50,160 --> 00:22:54,320
Speaker 2: negative implications here from a potential strike. But at the

392
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Speaker 2: same time, if those volumes are rerouted on the West

393
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Speaker 2: Coast and you're bringing some of those volumes back the

394
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Speaker 2: East Coast, I think back in October some of the

395
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Speaker 2: East Coast rails did say that they may have a

396
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Speaker 2: part to play in the relocation of some of that

397
00:23:09,080 --> 00:23:11,639
Speaker 2: freight from the West Coast to the East Coast, And

398
00:23:11,760 --> 00:23:13,879
Speaker 2: so I think it's pretty obvious to think that, you know,

399
00:23:13,920 --> 00:23:18,360
Speaker 2: the freight forwarding companies and the West Coast railroads might

400
00:23:18,480 --> 00:23:21,080
Speaker 2: be short term beneficiaries of this, But as we saw

401
00:23:21,160 --> 00:23:23,280
Speaker 2: back in October, I think, you know, any benefits might

402
00:23:23,320 --> 00:23:27,080
Speaker 2: be short term uh and m role out very quickly. Also,

403
00:23:27,160 --> 00:23:29,320
Speaker 2: the mix on these volumes might not be that great.

404
00:23:30,280 --> 00:23:32,520
Speaker 2: The question is what happens in medium to long term

405
00:23:33,240 --> 00:23:35,679
Speaker 2: and whether you know, if there is a stoppage if

406
00:23:35,680 --> 00:23:38,400
Speaker 2: it is likely to be a prolonged stoppage, I think

407
00:23:38,440 --> 00:23:41,920
Speaker 2: the likelier a prolonged stoppage is low. I think it

408
00:23:42,000 --> 00:23:45,120
Speaker 2: is higher than it was back in October, but it's

409
00:23:45,280 --> 00:23:48,879
Speaker 2: it's still fairly low in oterview, but again TBD and

410
00:23:48,920 --> 00:23:51,800
Speaker 2: how this plays out from our conversations with shippers. I

411
00:23:51,920 --> 00:23:56,359
Speaker 2: think they are somewhat more concerned about the port strike

412
00:23:56,400 --> 00:24:00,040
Speaker 2: situation now than they were back in October, and I

413
00:24:00,040 --> 00:24:02,040
Speaker 2: think they should be. But yeah, we'll see all the

414
00:24:02,080 --> 00:24:02,479
Speaker 2: stays up.

415
00:24:03,280 --> 00:24:05,880
Speaker 1: Great and you mentioned these coast rails. You know those

416
00:24:05,920 --> 00:24:09,639
Speaker 1: are Norfolk, Southern and CSX, and it's great coat to

417
00:24:09,800 --> 00:24:13,840
Speaker 1: pivot about. You know your thoughts on the rail. Where

418
00:24:13,840 --> 00:24:15,880
Speaker 1: do you see growth for rails in twenty twenty five.

419
00:24:15,920 --> 00:24:17,960
Speaker 1: Do you think it's going to be more better than

420
00:24:18,000 --> 00:24:19,200
Speaker 1: what we saw in twenty twenty four?

421
00:24:21,680 --> 00:24:25,960
Speaker 2: It should be given our views in the cycle, I'd

422
00:24:26,000 --> 00:24:29,320
Speaker 2: be very surprised if the volume growth algorithm was not

423
00:24:29,440 --> 00:24:32,600
Speaker 2: better in twenty five than in twenty four. That's said,

424
00:24:33,560 --> 00:24:35,640
Speaker 2: and it's been a long time since we've been able

425
00:24:35,680 --> 00:24:39,080
Speaker 2: to see this. I don't think volumes are the rails problem.

426
00:24:39,160 --> 00:24:42,560
Speaker 2: Their volumes actually have been pretty decent for the last

427
00:24:42,640 --> 00:24:46,359
Speaker 2: couple of years. The problem is dropping that through to

428
00:24:46,480 --> 00:24:51,320
Speaker 2: the bottom line, where the mix and the pricing on

429
00:24:51,600 --> 00:24:56,040
Speaker 2: that incremental volume growth has not been enough to offset inflation,

430
00:24:56,840 --> 00:24:59,760
Speaker 2: and therein lies the big debate in twenty twenty five.

431
00:25:00,520 --> 00:25:03,200
Speaker 2: One of the concerns we have is that usually in

432
00:25:03,640 --> 00:25:08,120
Speaker 2: up cycles, trucking takes tends to take share back from

433
00:25:08,160 --> 00:25:11,720
Speaker 2: the rails. Rails take share from trucks and down cycles,

434
00:25:12,240 --> 00:25:17,080
Speaker 2: especially if there is an expedited tariff driven restocking plan,

435
00:25:17,880 --> 00:25:21,920
Speaker 2: then I think trucking could take share from rails and

436
00:25:22,080 --> 00:25:26,240
Speaker 2: intermodal again this time which may put pressure on volume

437
00:25:26,320 --> 00:25:29,680
Speaker 2: and price for the rails. And the question is again

438
00:25:29,840 --> 00:25:32,040
Speaker 2: is that going to be enough to offset what it

439
00:25:32,040 --> 00:25:35,720
Speaker 2: is likely to be mid single digit inflation for the

440
00:25:35,840 --> 00:25:39,239
Speaker 2: rails in twenty five and twenty six. I think if

441
00:25:39,320 --> 00:25:44,879
Speaker 2: they can demonstrate that they can deliver margin creative volume

442
00:25:44,920 --> 00:25:48,040
Speaker 2: growth for the first time in many, many years for

443
00:25:48,119 --> 00:25:50,840
Speaker 2: the rails, because they mean the volumes have not been

444
00:25:50,880 --> 00:25:53,520
Speaker 2: their friends for the last fifteen or twenty years, I

445
00:25:53,640 --> 00:25:56,560
Speaker 2: think it will be a turning point for the US

446
00:25:56,720 --> 00:26:00,280
Speaker 2: rails in particular, the Eastern rails in particular. They can

447
00:26:00,400 --> 00:26:03,720
Speaker 2: show that hey we can profitably grow. If they can't

448
00:26:03,760 --> 00:26:06,640
Speaker 2: do it even in this upcycle, then I think there'll

449
00:26:06,680 --> 00:26:08,520
Speaker 2: be some questions askew as to what the long term

450
00:26:08,680 --> 00:26:12,119
Speaker 2: earnings algorithm is for those guys. So I think the

451
00:26:12,280 --> 00:26:15,400
Speaker 2: U s reorls in particular a kind of are facing

452
00:26:15,560 --> 00:26:18,800
Speaker 2: a critical couple of quarters in twenty twenty five, and

453
00:26:19,000 --> 00:26:22,720
Speaker 2: the Canadian reels continue to have a more favorable growth

454
00:26:22,760 --> 00:26:26,119
Speaker 2: algorithm over time TVD what happens with neo shoring in

455
00:26:26,240 --> 00:26:30,080
Speaker 2: Mexico and everything geopolitically, But outside of that, they do

456
00:26:30,280 --> 00:26:33,680
Speaker 2: seem to have better growth prospects and better pricing prospects

457
00:26:34,359 --> 00:26:37,200
Speaker 2: than the US reels DoD argue right.

458
00:26:37,160 --> 00:26:38,800
Speaker 1: And a lot of that growth is coming from a

459
00:26:38,800 --> 00:26:41,200
Speaker 1: cross border or whatever you're talking about Canada, the US

460
00:26:41,320 --> 00:26:46,240
Speaker 1: or US to Mexico, you know CP Canadian Pacific, Kansas

461
00:26:47,280 --> 00:26:50,200
Speaker 1: City or KIN in the southern it's it's always a mouthful,

462
00:26:50,520 --> 00:26:56,639
Speaker 1: we'll just call it. Yeah, you know there. You know,

463
00:26:56,760 --> 00:26:59,639
Speaker 1: their their growth prospects are pretty interesting given you know,

464
00:26:59,800 --> 00:27:04,679
Speaker 1: the combination of the Mexico operations with this other operations.

465
00:27:05,600 --> 00:27:07,440
Speaker 1: Can you talk a little bit about CP, you know,

466
00:27:07,720 --> 00:27:10,480
Speaker 1: their growth prospects. Is it a name that you like

467
00:27:10,560 --> 00:27:12,879
Speaker 1: I think believe I believe you mentioned earlier that was

468
00:27:12,920 --> 00:27:14,439
Speaker 1: one of your favorites going into.

469
00:27:14,320 --> 00:27:18,440
Speaker 2: The quarter Green the Quarry. Yes, because I think they're

470
00:27:18,480 --> 00:27:20,560
Speaker 2: still on track to do double digit earnings growth in

471
00:27:20,600 --> 00:27:24,160
Speaker 2: twenty four. I don't think any other North American railroadal

472
00:27:24,240 --> 00:27:27,840
Speaker 2: commune clothes and I think, look, the reason why investors

473
00:27:27,880 --> 00:27:31,400
Speaker 2: were so excited about the combination of CPN CaCu three

474
00:27:31,480 --> 00:27:34,440
Speaker 2: four years ago now was because it is a once

475
00:27:34,560 --> 00:27:39,280
Speaker 2: in a generation transaction that creates what is arguably the

476
00:27:39,359 --> 00:27:43,840
Speaker 2: best network in North America. And given the kind of

477
00:27:44,040 --> 00:27:49,160
Speaker 2: tricoastal connectivity, they should have the access to the best

478
00:27:49,240 --> 00:27:52,880
Speaker 2: end markets and the best growth prospects in the industry.

479
00:27:53,680 --> 00:27:57,520
Speaker 2: They should have the fart like electoral competitive fast service

480
00:27:58,160 --> 00:28:01,439
Speaker 2: from the US into Mexican go that should help them

481
00:28:01,520 --> 00:28:04,200
Speaker 2: ad pricing as well. And so all of that looks

482
00:28:04,280 --> 00:28:07,720
Speaker 2: really good on paper. It's been a little bit frustrating

483
00:28:07,840 --> 00:28:09,840
Speaker 2: waiting for the cycle to come back to prove that

484
00:28:10,000 --> 00:28:12,560
Speaker 2: in real life. Now. Again, like I just said, they

485
00:28:12,640 --> 00:28:17,600
Speaker 2: have done relatively well in twenty twenty four compared to peers,

486
00:28:18,280 --> 00:28:21,240
Speaker 2: but at the same time, I think the market is

487
00:28:21,280 --> 00:28:23,800
Speaker 2: expecting a lot more and the question is, you know,

488
00:28:24,080 --> 00:28:27,240
Speaker 2: is given all the puts in takes on near sharing

489
00:28:27,520 --> 00:28:31,479
Speaker 2: versus imports, versus growth versus all these new projects are

490
00:28:31,480 --> 00:28:33,800
Speaker 2: going to be launched in the US, are number is

491
00:28:34,000 --> 00:28:37,200
Speaker 2: going to be able to hit expectations that are built

492
00:28:37,520 --> 00:28:40,960
Speaker 2: into the stock. Again, we're saying that the Canadian rails

493
00:28:41,000 --> 00:28:44,920
Speaker 2: are a better position than the US rails are both

494
00:28:45,000 --> 00:28:48,959
Speaker 2: CN and CP. Again, the question is, you know, how

495
00:28:49,000 --> 00:28:53,080
Speaker 2: does this play out relative expectations in twenty five? Raises right?

496
00:28:53,320 --> 00:28:56,440
Speaker 1: And I guess going into twenty five, you know so

497
00:28:56,680 --> 00:28:59,760
Speaker 1: just because you said you prefer the Canadian rails to

498
00:28:59,800 --> 00:29:03,360
Speaker 1: the usrael, so you're more positive on CN and CP

499
00:29:03,560 --> 00:29:08,960
Speaker 1: relatives in or Southern CSX and Union Pacific. That's great, Yes, okay,

500
00:29:09,320 --> 00:29:13,640
Speaker 1: very good. You know what another names that we haven't

501
00:29:13,640 --> 00:29:16,280
Speaker 1: talked about that you're pretty excited about in terms of

502
00:29:16,440 --> 00:29:17,840
Speaker 1: prospects for twenty twenty five.

503
00:29:18,800 --> 00:29:20,880
Speaker 2: Look, I think we kind of clush on most of

504
00:29:20,920 --> 00:29:24,680
Speaker 2: the names. I think the intromodial companies will be another

505
00:29:24,840 --> 00:29:30,600
Speaker 2: interesting kind of performance benchmark for twenty five. Obviously, there

506
00:29:30,680 --> 00:29:32,840
Speaker 2: was a fair bit of capacity in the space in

507
00:29:33,680 --> 00:29:36,440
Speaker 2: coming into this downturn, and that did have an impact

508
00:29:36,520 --> 00:29:41,960
Speaker 2: on utilization and price that is looking to reset in

509
00:29:42,200 --> 00:29:44,920
Speaker 2: twenty five, But again it remains we've seen what that

510
00:29:45,040 --> 00:29:47,440
Speaker 2: truck versus real share shift looks like and where that's

511
00:29:47,440 --> 00:29:49,480
Speaker 2: going to be enough to meet numbers, and so for

512
00:29:49,640 --> 00:29:52,840
Speaker 2: names like JBHNT, Hub Group, Schneider, et cetera. I think

513
00:29:53,120 --> 00:29:56,640
Speaker 2: the streets looking to see what the intramodal algorithm for

514
00:29:56,760 --> 00:29:58,760
Speaker 2: earnings looks like. It looks looks like as well. But

515
00:29:59,000 --> 00:30:01,840
Speaker 2: apart from that, I think it's the debate's going to

516
00:30:01,880 --> 00:30:04,440
Speaker 2: come down to what does a cycle look like and

517
00:30:04,680 --> 00:30:07,520
Speaker 2: do we see that big restocking up cycle like we expect,

518
00:30:07,880 --> 00:30:10,120
Speaker 2: how long does it last? What lies on the other

519
00:30:10,240 --> 00:30:13,880
Speaker 2: side of that, When does a market kind of shift

520
00:30:14,000 --> 00:30:15,720
Speaker 2: from looking at the near term to looking at the

521
00:30:15,760 --> 00:30:17,720
Speaker 2: media in the long term. I think those are going

522
00:30:17,800 --> 00:30:18,880
Speaker 2: to be the big debates in twenty five.

523
00:30:19,680 --> 00:30:21,840
Speaker 1: Right, So you also cover the airlines. I don't know

524
00:30:21,920 --> 00:30:25,120
Speaker 1: anything about airlines. Our senior analyst George ferguson the Bloomberg

525
00:30:25,120 --> 00:30:28,080
Speaker 1: Intelligence covers that space, but I'll ask probably a couple

526
00:30:28,120 --> 00:30:30,959
Speaker 1: of basic dumb questions for you. You know, what kind

527
00:30:31,000 --> 00:30:33,560
Speaker 1: of trends are you seeing on the passenger airline side

528
00:30:33,600 --> 00:30:36,280
Speaker 1: of transportation going into the fourth quarter in twenty twenty five.

529
00:30:37,840 --> 00:30:40,920
Speaker 2: Sure, so we are very bullish the airlines. We have

530
00:30:41,080 --> 00:30:44,480
Speaker 2: been pretty much since the trough of the pandemic. We

531
00:30:44,640 --> 00:30:49,040
Speaker 2: are continue going to see very strong demand trends. I

532
00:30:49,120 --> 00:30:52,080
Speaker 2: think holiday season travel will end up being about ten

533
00:30:52,160 --> 00:30:56,760
Speaker 2: percent above last year. And one of the biggest structural

534
00:30:57,600 --> 00:31:02,760
Speaker 2: trends in this industry is the increasing premiumization. I think

535
00:31:02,800 --> 00:31:04,480
Speaker 2: that's a word that we just made up, but we're

536
00:31:04,520 --> 00:31:07,200
Speaker 2: just assuming that that is now a real word of

537
00:31:07,320 --> 00:31:12,040
Speaker 2: the industry. This is a complete reversal from the trend

538
00:31:12,120 --> 00:31:15,440
Speaker 2: that we saw in the decade leading into the pandemic,

539
00:31:15,520 --> 00:31:18,320
Speaker 2: where you were seeing commoditization of the industry and the

540
00:31:18,520 --> 00:31:22,920
Speaker 2: race to the bottom on both price and service. But

541
00:31:23,160 --> 00:31:25,600
Speaker 2: now we're going the opposite direction, and even the low

542
00:31:25,680 --> 00:31:29,120
Speaker 2: cost carriers are introducing, you know, business lost products and

543
00:31:29,200 --> 00:31:32,719
Speaker 2: premium products and lounge access because that's what the end

544
00:31:32,760 --> 00:31:36,280
Speaker 2: consumer wants. UH. That is very good for the industry

545
00:31:36,320 --> 00:31:38,240
Speaker 2: as a whole. I think to be very good for

546
00:31:38,320 --> 00:31:42,400
Speaker 2: the consumer as well, and we are that's also kind

547
00:31:42,440 --> 00:31:46,200
Speaker 2: of against the backdrop of an industry that has historically

548
00:31:46,360 --> 00:31:52,920
Speaker 2: had very poor capacity control, UH, that is now looking

549
00:31:53,080 --> 00:31:57,680
Speaker 2: to meet her capacity growth largely because of structural constraints

550
00:31:57,720 --> 00:32:01,320
Speaker 2: around capacity to their growth, the LA lack of new aircraft,

551
00:32:01,400 --> 00:32:06,800
Speaker 2: availability constraints around ATC capacity, that's air traffic control constraints

552
00:32:06,800 --> 00:32:11,360
Speaker 2: around airport gate capacity. The pilot availability situation is much improved,

553
00:32:11,440 --> 00:32:16,160
Speaker 2: but still not perfect relatively demand. There are many, many

554
00:32:16,240 --> 00:32:20,520
Speaker 2: bottle lecks to growing air capacity, and many of those

555
00:32:20,560 --> 00:32:25,280
Speaker 2: bottlelecks are structural, and that means there's an industry that

556
00:32:26,080 --> 00:32:30,720
Speaker 2: cannot grow faster than they should, which has been a

557
00:32:30,760 --> 00:32:34,080
Speaker 2: problem over time. And so all of this, in what

558
00:32:34,520 --> 00:32:36,560
Speaker 2: for now at least appears to be a benign jet

559
00:32:36,600 --> 00:32:41,400
Speaker 2: fill environment, sets up for anosly a pretty solid earnings

560
00:32:41,400 --> 00:32:44,320
Speaker 2: outlook for the airlines in twenty five. The street has

561
00:32:44,440 --> 00:32:47,120
Speaker 2: finally started or recognized this, and airline stocks have done

562
00:32:47,760 --> 00:32:49,720
Speaker 2: pretty well in the last four to five months or so,

563
00:32:50,400 --> 00:32:53,440
Speaker 2: and we expect that momentum to continue this year. This year,

564
00:32:53,960 --> 00:32:57,400
Speaker 2: did you have a favorite name five yes, so in

565
00:32:57,440 --> 00:33:00,840
Speaker 2: our outlook to be published in the December as well,

566
00:33:01,400 --> 00:33:06,480
Speaker 2: Alaska Airlines is our new topic in the US, followed

567
00:33:06,520 --> 00:33:09,040
Speaker 2: by Delta, and then we have some of the domestic names.

568
00:33:09,080 --> 00:33:13,240
Speaker 2: That's American UH and the Southwest, followed by United and

569
00:33:13,320 --> 00:33:16,920
Speaker 2: sun country. But honestly, we expect the rising tide of

570
00:33:17,600 --> 00:33:22,120
Speaker 2: industry fundamentals to lift all the boats or planes in

571
00:33:22,200 --> 00:33:22,560
Speaker 2: the space.

572
00:33:23,680 --> 00:33:26,480
Speaker 1: Great. That was That was awesome. So, I you know,

573
00:33:26,760 --> 00:33:29,600
Speaker 1: just you know, pivoting a little bit. You know, you've

574
00:33:29,640 --> 00:33:32,120
Speaker 1: been on the sell side for a little over two

575
00:33:32,200 --> 00:33:35,320
Speaker 1: decades if I'm not mistaken. You know, what do you

576
00:33:35,400 --> 00:33:37,120
Speaker 1: what do you like most about your role as a

577
00:33:37,200 --> 00:33:38,480
Speaker 1: senior analyst on the cell side.

578
00:33:39,120 --> 00:33:41,040
Speaker 2: I think one of the best things about seal side

579
00:33:41,080 --> 00:33:43,160
Speaker 2: research is that there are very few jobs in the

580
00:33:43,280 --> 00:33:53,960
Speaker 2: world that combine analytics with creativity like cell side research does. Also,

581
00:33:54,160 --> 00:33:56,400
Speaker 2: I can sit behind a computer and bang out one

582
00:33:56,440 --> 00:33:59,840
Speaker 2: hundred page report for a week, But the rest of

583
00:33:59,880 --> 00:34:03,520
Speaker 2: my job is literally traveling the world to meet clients

584
00:34:03,680 --> 00:34:07,440
Speaker 2: and and talk to some very very smart people on

585
00:34:07,560 --> 00:34:10,640
Speaker 2: both the buyside and the outside and you know, share

586
00:34:10,840 --> 00:34:15,080
Speaker 2: exchange ideas with them. And so it's both an introverted

587
00:34:15,160 --> 00:34:18,040
Speaker 2: and extroverted job. And so it's sort of the best

588
00:34:18,120 --> 00:34:21,520
Speaker 2: of all worlds in my view in terms of what

589
00:34:21,719 --> 00:34:24,520
Speaker 2: you need to do to succeed in the space and

590
00:34:24,960 --> 00:34:28,800
Speaker 2: also kind of the skill sets you need here to

591
00:34:28,960 --> 00:34:30,120
Speaker 2: to to be successful here.

592
00:34:31,080 --> 00:34:33,080
Speaker 1: Right, And then what would you characterize is some of

593
00:34:33,120 --> 00:34:35,440
Speaker 1: the most challenging aspects of your role.

594
00:34:36,600 --> 00:34:42,040
Speaker 2: Oh, it's really hard to call stocks. Uh and you,

595
00:34:42,800 --> 00:34:44,800
Speaker 2: I don't care who you are. In the course of

596
00:34:44,840 --> 00:34:48,400
Speaker 2: your career, you will have bad calls and make mistakes.

597
00:34:48,520 --> 00:34:53,359
Speaker 2: And it's never good when a company you know, print

598
00:34:53,400 --> 00:34:55,680
Speaker 2: a number that is the opposite of what you're expecting.

599
00:34:55,840 --> 00:34:58,320
Speaker 2: And like there's a sinking feeling in the predicious stolock.

600
00:34:59,120 --> 00:35:02,279
Speaker 2: But hopefully over time the good calls get out with

601
00:35:02,400 --> 00:35:02,880
Speaker 2: the battles.

602
00:35:03,600 --> 00:35:06,280
Speaker 1: Gotcha, And I like to ask us of all my guests,

603
00:35:06,520 --> 00:35:09,280
Speaker 1: do you have a favorite book about investing or Wall Street.

604
00:35:10,400 --> 00:35:14,719
Speaker 2: I'm not a huge book reader, but I think my

605
00:35:15,040 --> 00:35:20,240
Speaker 2: early impression of Wall Street was defined by the movie

606
00:35:20,360 --> 00:35:23,600
Speaker 2: Wall Street. I think it was like ninety eighty seven

607
00:35:23,640 --> 00:35:29,000
Speaker 2: or eighty eight, the original Gordon Gecko, you know, type role.

608
00:35:29,360 --> 00:35:33,120
Speaker 2: I think it's it's not going to get better than

609
00:35:33,200 --> 00:35:36,120
Speaker 2: that in terms of setting the states for walls for you.

610
00:35:36,640 --> 00:35:43,720
Speaker 1: Yeah, that in the book Liar's Poker probably Yeah, agreed, Yes, fantastic. Well, Robbie,

611
00:35:43,760 --> 00:35:45,200
Speaker 1: I just want to thank you so much for your

612
00:35:45,239 --> 00:35:48,239
Speaker 1: time and insights. I really appreciate you joining us again

613
00:35:48,280 --> 00:35:48,920
Speaker 1: on the podcast.

614
00:35:50,000 --> 00:35:51,719
Speaker 2: No, thanks for having me on. And yeah, it's gonna

615
00:35:51,719 --> 00:35:53,160
Speaker 2: be interesting year. Let's see where we go from here.

616
00:35:53,600 --> 00:35:55,839
Speaker 1: All right, sounds good and I also want to thank

617
00:35:55,880 --> 00:35:57,919
Speaker 1: you for tuning in. If you'd like the episode, please

618
00:35:57,960 --> 00:36:00,960
Speaker 1: subscribe and leave a review. Up A number of great

619
00:36:01,000 --> 00:36:03,120
Speaker 1: guests for the podcast, so please check back to your

620
00:36:03,200 --> 00:36:07,800
Speaker 1: conversations with C suite executives, shippers, regulators, and decision makers

621
00:36:07,920 --> 00:36:11,040
Speaker 1: within the freight markets. Also, if you want to learn

622
00:36:11,120 --> 00:36:14,160
Speaker 1: more about the freight transportation markets, check out our work

623
00:36:14,239 --> 00:36:17,520
Speaker 1: on the Bloomberg Terminal at Bigo or on social media.

624
00:36:17,840 --> 00:36:20,359
Speaker 1: Take care and let's keep those supply chains moving. Thanks

625
00:36:20,440 --> 00:36:21,160
Speaker 1: everyone forviding