Who Stands to Benefit Now that the Postal Service Can't Deliver?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the Postal Service just missing a $5.5 billion payment for employee benefits and reducing hours at 13,000 rural facilities across the United States with more office shutdowns inevitable, private sector competitors such as FedEd (NYSE: FDX), C.H. Robinson Worldwide (NASDAQ: CHRW), Wal-Mart (NYSE: WMT), Western Union (NYSE: WU) and United Parcel Service (NYSE: UPS) look very appealing as long term investments. While slowing global growth is weighing on each, the future will have the share prices heading much higher for a variety of factors.
The Postal Service provides a variety of services. Obviously, it delivers the mail and packages. But it also provides banking functions through money orders and international wiring services. The Postal Service also sells a variety of business supplies.
Benefiting the most, both directly and indirectly, will be global shippers Fed-Ex and United Parcel Service. While FedEd already operates with the Postal Service on a limited basis, the loss in confidence, reduced hours and fewer locations will send more business directly to Fed-Ex. The same applies for United Parcel Servce, too.
Other than direct mail service, both FedEx and United Parcel Service have office operation facilities that can perform many of the functions of the local post office. FedEx Office assimilated the Kinko's chain into its network for that purpose. At present, there are now more than 1900 FedEx Office locations. There are also UPS stores nationwide and 40,000 UPS drop boxes to provide services where the Postal Service falls short.
C.H. Robinson Worldwide, with 235 branch offices, is an alternative to the Postal Service for bulk shipping business. Western Union competes in money orders and international wire transfers. As the world's largest retailer, Wal-Mart offers everything at its stores from buying stamps to money orders and wire transfers to the needed supplies and services required for mailing and/or shipping.
Due to the recession in Europe and declining economic growth around the world, shipper stocks are down. FedEx has fallen by 5.05% for the last month of market action. For the same period, UPS is lower by 5.62%. Year to date, C.H. Robinson is off by 23.05%. Since the first of the year, the share price of Western Union has declined by 5.87%. With a more diversified offering of goods and service, Wal-Mart is up 48.34% for the last 52 weeks of trading.
It will only get worse for the Postal Service. Like so many ossified organizations, the compensation structure is unsustainable: the pay and perks for employees, particularly retirement benefits, are simply too high, just like the automobile companies; and many other governmental entities around the world.
It will only get better for Western Union, United Parcel Service, FedEx, Wal-Mart and C.H. Robinson Worldwide. All are uniquely situated to profit from the global growth of the years ahead, particularly in Asia. With 1.5% percent growth just registered for the second quarter of 2012 for the United States, it is difficult to be bullish on America for the future.
Even if economic growth were even, the population will be expanding far more around the world and holding steady in the United States. According to Global Trends 2025: A Transformed World, almost all of the population growth over the next 25 years will be in Africa, Asia and Latin America. That is not where the postal service are strong.
In the United States, the Postal Service will suffer from a reduced presence, both physically and psychologically. Competitors will offer alternative products and services to take away the most profitable lines of business. Wal-Mart will do what it can to meet even more mailing needs under one roof, along with grocery shopping, buying clothes, getting a haircut, and having an eye exam along with dining in for lunch or buying prepared foods to take home for dinner.
The more money that the Postal Service loses, the more profits will be delivered to United Parcel Service, Wester Union, FedEx, C.H. Robinson Worldwide and Western Union.
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