Shares of several large trucking companies plunged on Wednesday after Amazon.com Inc. announced an expansion of its shipping service that has already shaken the transportation and logistics sector and unsettled investors .
Old Dominion Freight Line Inc., FedEx Freight Holding Co. and Saia Inc. all fell roughly 10% after Wall Street opened, before recovering some of the losses. The companies specialize in “less-than-truckload” services, carrying shipments that are larger than parcels but smaller than full truckloads.
Amazon said it was expanding its less-than-truckload offering to any kind of destination across the US, from third-party warehouses to “retail partners.” The offering is part of the Amazon Supply Chain Services suite that the company unveiled last month, raising fears that it would snatch business away from established players.
The e-commerce giant “may be able to capture meaningful market share even if they are unable to offer best-in-class service levels immediately,” Morgan Stanley analyst Ravi Shanker wrote in a note to clients. “This could strike at the perceived ‘moat’ of real estate footprint and service that form the central pillar of the LTL thesis today.”
When the new initiative was first announced, parcel carriers such as United Parcel Service Inc. and third-party logistics firms like CH Robinson Worldwide Inc. sold off heavily, though they later recovered those losses. Analysts expected that less-than-truckload companies would be relatively insulated from competition, given the specialized networks that their services require.
Bloomberg Intelligence analyst Lee Klaskow defended legacy carriers after the latest announcement, saying it was unlikely to have a significant impact. “Shippers that would likely leverage Amazon would be cost-conscious, shipping low-value freight with little concern over service,” Klaskow wrote in a report.
Wednesday’s selloff came on the heels of a furious rally in less-than-truckload names. Old Dominion shares had surged nearly 60% this year through Tuesday and were trading at 43 times the next year’s estimated earnings, with Saia commanding a valuation nearly as rich. The broader S&P 1500 Transportation Index had a price-to-earnings multiple of 19.
It also came a little more than a week after FedEx Freight began trading as an independent company following a spinoff from FedEx Corp. That stock had recovered from a first-day drop, rallying more than 25% through Tuesday.