Buy FedEx, UPS on likely ILA port strike, says Stifel

Stifel sees a very high likelihood of a strike by the International Longshoremen’s Association, or ILA. The current labor agreement is set to expire at Midnight on Tuesday and the ILA has said that it will not work without one. A few days of strike would still be relatively digestible but the impact scales exponentially over time, and Stifel thinks a longer duration is likely. The firm believes the most obvious beneficiaries of protracted disruption would be international airfreight capacity providers, including UPS (UPS) and FedEx (FDX). Freight forwarding intermediaries are likely to see an increase in volumes, with offsetting impact from higher purchased capacity and resulting gross margin squeeze. These include Expeditors (EXPD) and C.H. Robinson (CHRW), Stifel notes. With respect to the rails, there are clearly some near-term headwinds to both East Coast rails — CSX (CSX) and Norfolk Southern (NSC). The firm also thinks there may be some small upside for Matson (MATX) through their West Coast expedited service, but it is unlikely to materially move numbers assuming a work stoppage is not protracted.