You Should Buy These Boring Delivery Companies
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Air delivery and freight are some of the most boring businesses on the face of the earth. But they balance this out by being extremely dependable. Despite the impact that the recession of the past few years has had on the industry, indeed every industry, these companies have been survivors. Their profit margins are solid, their dividends are strong, and they've continued operating in as many new and inventive ways as possible. Naturally, shipping companies almost universally have good international exposure, so I won't harp on that like I usually do. Let's take a look at some of the power players in this "old faithful" industry.
I like C.H. Robinson Worldwide (NASDAQ: CHRW) for several reasons. For one thing, Robinson is a third party logistics provider, which means it doesn't own 90%+ of the equipment used to transport goods. This allows the company a lot of freedom and a general lack of bias as far as how goods are shipped. I can imagine its 37,000 customers appreciate getting the most generous pricing based on keeping goods flowing on schedule, instead of because the shipper owns a certain kind of transportation equipment. What I don't like so much is that Robinson also sources fresh produce and offers services like payment processing for trucking companies and warehousing services. While I like vertical integration as much as the next guy, it's hard to diversify properly without turning into an unwieldy conglomerate (I'm looking at you, Citigroup).
I found some neat things when I was doing my research on Expeditors International of Washington (NASDAQ: EXPD). Apparently, the entire company is run so that each branch is an equal revenue generator, which is great in a world where far too many companies use their winning sections to prop up their losers. The fact that the primary compensation that management receives is incentives based on their individual sections' profits is refreshing. I also liked what I read from the company. Keeping their accounts receivable regularly updated to reflect how some customers simply can't or won't pay for services is a very mature way to handle this inevitability. But of course, this does open up the company to potentially being too lenient on shippers that might take advantage of them.
FedEx (NYSE: FDX) pretty much speaks for itself. As one of the largest companies in the delivery and air freight business, owning the former Kinko's locations and having a seriously recognizable brand, FedEx is hard to beat. Not only has FedEx successfully ingrained itself into common usage (as in having something "FedExed" to get it there ASAP), but this is a company that designed a proprietary font just for the emphasis of an arrow indicating speed into its wordmark (seriously, look at the space between the second E and the X).
This is a driven company, no pun intended. The downside of FedEx is that they like to take risks, including accusing their competitor UPS of receiving a "Brown Bailout" upon the signing of the Federal Aviation Administration's re-authorization bill. FedEx is also experimenting with electric fleet vehicles, and at one point even suggested flying packages across the Atlantic in a Concorde jet to make things even faster. This is a company that's down for some risk-taking, and some risks turn out really badly.
I love it when a company acknowledges the differences between different kinds of businesses, and UTi Worldwide (NASDAQ: UTIW) is the best I've seen from this group about that. Looking at their website, I was struck by the fact that every page had copy written specifically for the industry that focused on how UTi could help them. The wording felt like it was directed at entirely different people, and that reflects an attention to detail that you just can't find in the financials. I also like how with its $1.43 billion market cap, UTi is small and undoubtedly hungry to grow. Unfortunately, I have to wonder about how much fuel costs and other incidentals of transportation have hurt UTi, since it only carries a 1.5% profit margin. I also have to question management's reasoning behind paying a dividend when the company might apply that money better internally. It's hard to say.
Overall, shipping and logistics have kept on course pretty solidly considering how much financial upheaval and declining consumer demand have piled on over the past few years. Just remember to do your own research, and let me know if I missed any important points.
pongun has no positions in the stocks mentioned above. The Motley Fool owns shares of Expeditors International of Washington and FedEx. Motley Fool newsletter services recommend FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.