Amazon Repackaging of Shipping Services Fuels UPS, FedEx Selloff

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1:33Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. One of the most read stories on the Bloomer Terminal today impacts some of these FedEx, UPS and some of these shipping companies. U.S. transportation stocks plunged Monday after Amazon.com announced expanded logistics offering. Amazon will offer freight distribution and fulfillment and parcel shipping to businesses beyond Amazon sellers, including companies such as 3M and Land's End.

2:17Wow, that's a change. Lee Clasgow, he covers all the logistics companies here, including the FedExes and the UPSs of the world. This seems like a big announcement, Lee. Put it into context for us. Yeah, actually, you know, it's pretty interesting, the market reaction. Amazon has been kind of doing this quietly. A lot of the services that they announced that they're going to be offering for quite some time, for two or three years now. I guess they're making an official push that they're trying to get broader or cast a wider net in terms of the customers that they can reach. We would say for the freight transportation world, the sky really isn't falling.

2:52Yes, Amazon will be a competitor, but we expect that the things that they're going to go after might not be the high margin businesses that the FedExes and the UPSs of the world are going after. And it's going to be felt by freight forwarders, such as companies like Expediters or DSV, and also folks in the warehousing and distribution business like a GXO.

3:17Scarlet Fu:Yeah, but Amazon doesn't just stop there, right? I mean, it may start there, and then eventually it's going to continue building out this logistics business. How long do we think that'll take? Yeah, so they're already offering these services. And what they tend to do is they go into a market because they want to reduce their costs to serve, their costs to do their core competency, their main businesses, which obviously is the Amazon.com business. So what they're trying to do is really take the excess capacity, the expertise that they have that they've built doing things in-house and kind of be able to lower the, like I said, lower the average cost.

3:55How long will it take? I mean, it really depends on what they're going after. We don't think they're like a huge threat to the less than truckload market. We think that, you know, for commoditized freight, yes, they can make inroads into the brokerage and freight forwarding businesses. But, you know, those businesses, it's not just about executing, right? It's about relationships. It's about being able to provide consistency and quality over time. And Amazon has to earn some of that business as well. Just because they're in the business doesn't mean people are going to go to them. So how does this strategy differ from what they have been doing here?

4:30Because it seems like you do see them, the trucks everywhere. So how has this changed? Yeah. So, you know, a lot of things that they do for other shippers, it's really kind of on a non-asset basis. So those trucks you're seeing, they might own the trailers, but they don't own the truck. The truck is an independent contractor that maybe their brokerage business secured, or maybe they did it through somebody else. So, you know, they're going to continue to do that sort of stuff where they're going to say, you know, to a 3M, 3M might have a load to go somewhere and they could broker that load for them, or they might store some of their stuff in their warehouses and try to get it to their other distribution warehouses or maybe to the final mile, if you will.

5:19So they are definitely going to be incrementally encroaching on these transportation and logistic businesses. But like I mentioned earlier, they've been kind of doing this for two and three years. And we expect them to continue to build those businesses. But I don't expect to wake up tomorrow and all of a sudden, FedEx and EPS are at a disadvantage because those companies are going after higher margin business. They realize that the B2C business, while it's a growing business, is really a low margin business. And they'd rather grow their B2B. They'd rather grow into higher margin or verticals like healthcare.

5:56And they're really focusing on the small to midsize customers. And that's probably where Amazon's going to compete with them the most.

6:03Scarlet Fu:So Lee, given all of that, and thank you for, you know, just kind of talking down people who might be panicking. You're looking at FedEx down 9%. You're looking at UPS down almost 10%. Is that just an overreaction? I mean, I would say so. You know, these names have had somewhat of a decent run as of late. Maybe UPS, or I should say, maybe FedEx more than UPS. But I think it's just, yeah, it's really kind of a bit of an overreaction because fundamentally, FedEx and UPS are no different than they were yesterday. Stay with us. More from Bloomberg Intelligence coming up after this. If your finance team spends more time finding data than using it, if there's one entity here and one here and one here and one here, if scaling your business feels like starting over, you need the Intuit ERP.

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8:54Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Tyson Foods, the meat processor coming in with results. And the big question here is what happens between beef and chicken and pork? They're kind of moving in opposite directions. But protein is protein. And there's a lot of demand for it. That's what they tell me. Jen is joining us from Princeton. Jennifer Bartaschis, our senior retail staples and packaged food analyst.

9:32Scarlet Fu:So, Jennifer, just walk us through here protein demand and how chicken and pork purchases are definitely benefiting. But even though there's a lot of demand for beef, this is a money losing business. Yeah, good morning. So, you know, protein demand is through the roof. Consumers are continuing to seek protein across all the different meal parts of the day. And so this is really a great tailwind for companies like Tyson that are involved in multiple proteins. Chicken is by far the most stable part of the company at the moment. It's continuing to grow. Pork demand is also pretty solid. And everybody likes their bacon and that sort of thing.

10:12But as you said, Scarlett, beef really is the big challenge. And that's because we have record low cattle supply in the United States right now. And that's just keeping the cost of animals very high, which is leading to the operating losses that we're seeing in the beef segment. Can you explain to me why we think about chicken, beef, I don't know, pork as protein? When did that enter the lexicon? Yeah, Paul, it's a good question. I mean, historically, we used to talk about center of the plate, and that just sort of implied it was a meat product. But in the past maybe six, seven, eight years, what we've seen is when we had the big spike of interest around plant-based protein, the dialogue really shifted to protein in general.

11:02And consumers are looking to find protein in a lot of different ways. And so meat is obviously a natural protein, but so are legumes. So are, you know, other plant-based types. Dairy is a great protein. And so now it's become more of a broader topic where protein is sort of that more generic word that everybody's using.

11:21Scarlet Fu:Right. And Tyson is kind of in a sweet spot here, given that it processes chicken, pork and beef. We know the DOJ, the Department of Justice, is investigating the meatpacking industry because of those record high beef prices. How involved is Tyson? I mean, is it a target? Is it a potential beneficiary if the government focuses more on foreign meat processors? Yeah, the government is, they've specifically really called out foreign meat processors like JBS. But Tyson does have a pretty good-sized beef business. At the end of the day, a lot of this sentiment coming from the government is about the whole idea of affordability.

11:59And people point to beef as prices that have gone up and up and up and up. But there is a supply-demand equation behind that that accounts for why those prices are still high. And so, you know, when it comes to collusion on price fixing or that there's something nefarious going on, I think that sometimes kind of that subject of affordability overshadows the fact that we just have a basic supply demand equation in balance. And that's really, you know, as we see it, something that's not going to change for the next probably two or three years. Why is that? Why is it going to have that supply and demand out of balance for beef?

12:37It's that we just don't have enough cattle being raised to be processed. And we see no signs on the horizon really right now that ranchers are retaining more cows to have calves to increase the size of the herds. And that comes from a lot of different things. It comes from higher interest rates. It costs more to raise the animals. It comes from weather. You have to have pretty good weather to have the pastures that you need in order to raise those animals. And right now, there's just a lot of risk in that. And so we haven't seen the inclination to increase that number of cows that are the cattle that are being raised.

13:17And until you have a better supply and demand stays high, it's just going to keep meaning high prices for the consumer. Yeah.

13:24Scarlet Fu:And we know that Tyson is trying to make some adjustments on its end. Right sizes beef unit. It closed a plant in Nebraska. It cut shifts at a Texas plant. But Jennifer, how much of this is really beyond Tyson's control? Well, they really can't control the size of the cattle herds. So I think the company has done a very, very good job of looking at what they can control, taking the actions needed, whether it's closing plants, reducing shifts, and optimizing kind of their network. And then when the cattle herd comes back, remember, it takes 18 months for a cow to be born to get to the point where it's ready to be processed.

14:01there's plenty of notice when the herds start to rebuild that they can adjust their capacity if needed. And so right now, I think Tyson is taking all the prudent measures needed to sort of optimize what they can control. Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth.

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15:18See complete disclosures at public.com slash disclosures. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business, IBM. For many men, mental health challenges aren't recognized until they've already taken a toll.

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16:23Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. We had some news out of Norwegian Cruise Lines, which was a little strange, I think, given some of the other cruise operators and their results. But Norwegian came out with some profit drop, some tepid guidance, and stock is taking it on the chin today. Brian Neger, Bloomberg Intelligence, Senior Gaming Lodging Analyst. He also covers the cruise lines here.

16:54Talk to us about Norwegian. Is their business unique, Brian, versus some of the other companies we've installed before? Yeah, they just installed a new CEO in February. They're going through a bit of a realignment, some operational changes and marketing changes. I think that was a big part of what's really happened here. They are guiding a 3 % to 5 % decline in net revenue yield for 2026. And this is the same environment where Royal Caribbean is looking for a 2 % increase. So obviously a bit of a disparity. And I think a lot of this is because part of the reason one of the prior CEO had left was they've not done a great job recently in commercializing their Caribbean product, aligning all their private islands and the water parks with their new cruise ships.

17:35And I think that's part of why they've underperformed. That's also why you think about why they cut their profit guidance 13%. A third of that was from fuel costs, which is basically due to the more in Iran. The other two thirds was not from fuel costs. So presumably something is changing operationally. Got it. A number of operators have seen pressure in Europe because of the Middle East conflict in terms of European cruise demand. But obviously, Norwegian here is seeing something worse.

18:01Scarlet Fu:So this sounds like it's an execution issue. And we also know that Norwegian is a target of activist investors. Elliott Management has built more than a 10 % stake, at least according to reports back in February. So when it comes to Norwegian, the company says the war is impacting all three of its brands. Who are Norwegian's customers compared with other cruise operators? Or is there just overlap? First of all, I do think that the kind of upper mid-market Norwegian cruise line brand has been more affected. The luxury brands like Oceania, Region 70s has been more resilient. So that's something kind of disparity we've seen across the travel industry.

18:38But they've really had to work on their marketing strategy. I mean, they are taking steps to address some of the prior missteps. That is to say they're going to reducing their SG &A costs by 15%. They're shaving about$125 million off of marketing costs. So they're kind of trying to target their marketing much more effectively. So they are going through a series of changes under a new CEO. That being said, obviously a disappointing performance, particularly given the strength of some of those brands to see such a significant guidance cut. Even putting aside what we know about the impact of Iran on European cruises and fuel costs, this is still a disappointment.

19:17So one analyst on Wall Street writes, and I'll quote you here, it's pretty funny, quote, this is NCLH, that's the ticker we are dealing with here. And by now, you should have learned to always expect the unexpected, aka expect the worst. Is this, this is coming up a management credibility problem? I don't think this has always been true, but there were obviously missteps that led up to the CEO change that happened in February, along with that replenishment of the board, as they call it, the new board members. And along with that, they are trying to, under a new CEO, undergo a series of changes, realigning people.

19:54You know, a 15 % reduction in salary and benefits costs means they're really revisiting the entire onshore infrastructure. So there are some company-specific things here. And I think you see it in the stock price action. You know, today in trading, Norwegian is significantly underperforming the others. This could be new CEO, kitchen sink this thing. And if that's the case - Set the bar low. Set the bar low. And if you believe in management, this is your buying opportunity. That could be the bullish call, right? It could be. I mean - But it comes down to a call on management. Yeah, this is also, I think, a not relatively known new CEO.

20:30I think we have to give him time to execute. But at the same time, there were events that led up to this board and management change. And now they're going through this process of essentially rewinding, restructuring. happens to be in an unfortunate backdrop at the same time that you have this war in Iran affecting both fuel costs and European cruise demand. So they're navigating both industry as well as company-specific issues.

20:52Scarlet Fu:Okay, we have one more cruise line operator that will be reporting Viking Holdings, reporting in 10 days. Paul is going to go on his first cruise later on this year, and he's already booked it. What do we think Viking is going to say? Is it, how much of a similar story is it going to tell to the other cruise line operators, Royal Caribbean and Carnival. Yeah, I think the extent they're involved in this kind of luxury river cruising market, the other part of the business is ocean cruising. So it's kind of a hybrid. That is a bit of a niche. And generally speaking across the travel industry, high-end luxury offerings have been outperforming, got a more mass market opportunity.

21:30So they, and they have also their yield growth has been outperforming. So while it's not necessarily representative of the entire ocean cruising industry, it is a niche that's done pretty well in this environment. Yeah, I was surprised at the price tag that came along with this thing. Pleasantly surprised? No. No, I was kind of like, wowzer.

21:50Scarlet Fu:But they didn't come back to you and say like, hey, we're adding a fuel surcharge, by the way, right? No, no, they didn't. So we'll have to. So that's in October. It's a high-end product. Stay with us. More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth.

22:21On Public, you can build a portfolio of stocks, options, bonds, crypto, without all the bugs or the confetti. Retirement accounts, yep. High-yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Add paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor. Crypto services by ZeroHash. All investing involves risk of loss.