What Happened?
A number of stocks jumped in the afternoon session after WTI crude oil fell 4.7% to $92.94, providing direct margin relief to trucking, rail, and logistics companies that spend a sizable percentage of operating costs on fuel.
Transportation (Old Dominion, Knight-Swift, J.B. Hunt, Schneider, Union Pacific, CSX, Norfolk Southern, FedEx, UPS, XPO, RXO) is one of the most direct beneficiaries of falling oil prices. For LTL trucking, significant drop in diesel prices typically improves operating margin.
For rail (which uses massive diesel volumes), the impact is similar but slightly smaller because rail fuel hedges average out moves. Air freight (FedEx, UPS) benefits even more from jet fuel declines.
Add Iran-US peace progress reducing supply chain risk, and falling Treasury yields making it cheaper to finance fleet renewals, and you have the textbook setup for the rebound.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Ground Transportation company RXO (NYSE: RXO) jumped 2.6%. Is now the time to buy RXO? Access our full analysis report here, it’s free.
- Ground Transportation company Saia (NASDAQ: SAIA) jumped 3.1%. Is now the time to buy Saia? Access our full analysis report here, it’s free.
- Ground Transportation company Werner (NASDAQ: WERN) jumped 3%. Is now the time to buy Werner? Access our full analysis report here, it’s free.
Zooming In On Saia (SAIA)
Saia’s shares are very volatile and have had 27 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 22 days ago when the stock dropped 7.7% on the news that WTI crude jumped 3% to above $105 per barrel and Brent surged 5% to over $114, following the UAE's interception of Iranian missiles and renewed concerns about the Strait of Hormuz.
Fuel is the single largest variable cost line for trucking, rail, and parcel operators, and the sharp move higher immediately compresses operating margins unless carriers can pass through fuel surcharges quickly which is harder in a softening freight environment.
Furthermore, with jet fuel reportedly trading near $4.56 per gallon, nearly double pre-war levels, and analysts warning of potential rationing in Asia and Europe, the entire global logistics chain faced both a cost shock and a routing problem.
Saia is up 38.7% since the beginning of the year, and at $467.69 per share, has set a new 52-week high. Investors who bought $1,000 worth of Saia’s shares 5 years ago would now be looking at an investment worth $2,066.
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