Sector Bird’s Eye View: Transport
What is it?
The transportation sector comprises of companies that provide the means to move people, goods, or infrastructure from one place to another. The industry can be broken down further into sub groups, such as air freight, logistics, marine, road and rail services.
Why is it important?
Transportation is a vital and growing sector. As the world becomes more globalized, the need for global and regional transportation and logistics companies increases. E-commerce has given this industry a serious boost over the last decade and looks set to only increase in prominence over time.
- Union Pacific
- JB Hunt Transport
- SPDR S&P 500 Transportation
- iShares S&P Global Industrials
- Industrial Select Sector SPDR
When does it do well/badly?
The transport sector performs best in a low interest rate environment when consumers have more disposable income to spend on e-commerce purchases and other foreign goods. In times of global expansion, transport companies flourish because firms source products from further afield to boost their profits. However, in recessionary times, producers look to source their goods or inputs locally to help cut costs, hurting transport and logistics firms. Given the cross-border nature of many transport companies’ business, it is also important to note that fluctuations in exchange rates can have a positive or negative bearing on performance and profit margins.
Why should I invest?
The growth of e-commerce and cross-border transactions has aided the rapid development of this industry, which is poised to continue growing at some speed. Investing in transportation is an excellent long-term strategy, and can be extremely lucrative in developing nations where e-commerce giants can occupy a great deal of the regional market share. Adding a few select transportation stocks or a diversified ETF to an investment portfolio can generate some strong returns in the long term.