Transport index takes off as US economy reopens

The Dow Jones Transportation Average, the world’s oldest benchmark that tracks some of America’s biggest transport and logistics companies, is outperforming major indices this year, underlining the strength of the US economic rebound.

The benchmark has been on a winning streak since the start of the year, rising just over 25 per cent so far, well ahead of the S&P 500, Nasdaq Composite and Stoxx Europe 600 indices.

As the US economy reopens, activity has accelerated across the airline, trucking, railway and parcel delivery companies that make up the gauge. It closed at a record high earlier in May, 135 per cent above its 2020 pandemic low.

The increase has been driven by a flood of demand for a wide range of goods as businesses reopen and more Americans return to work. The surge has drained capacity and driven up prices, bolstering transport groups’ profitability.

“It’s a good time to be moving things around. There’s a lot of demand, but not a lot of supply,” said Jamie Cox, managing partner at Harris Financial Group. “You have a year’s worth of pent-up demand. People want things and they want them now.”

Shares in the logistics companies UPS and FedEx have risen by 28 per cent and 21 per cent respectively since the start of the year, as consumers’ pivot to online shopping fuels a boom in residential package deliveries.

The trucking groups JB Hunt, Landstar and Ryder have all increased in value by about a third over the same period.

Railway stocks have also jumped because of a takeover battle for Kansas City Southern, whose shares have risen 49 per cent since January.

The car rental group Avis, whose shares have more than doubled this year, has been the Dow Transports’ top performer in 2021. The stock has surged almost 550 per cent since May last year, aided by a gradual recovery in travel.

While strong demand has supported an increase in prices, rental car companies face a tough road to replenishing their fleets after selling vehicles during the downturn to cut costs. A semiconductor shortage has interrupted new vehicle production and wholesale used-car prices have jumped 52 per cent year on year, according to the vehicle auctioneer Manheim.

Cox said airlines may also drag on the Dow Transports. He added that a chunk of the anticipated travel boom this year will be paid for with airfare credits left over from 2020.