UPS: What Brown Can't Do For You

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Macro Ops


  • Amazon's potential delivery service is not a significant threat to UPS.
  • The real problem they face is a slowdown in the economy.
  • The faltering economy along with lower oil prices and a stronger dollar are tanking UPS' stock price.

When it comes to the United Parcel Service (NYSE:UPS), investors love talking about the threat of Amazon (AMZN). There's constant chatter that Amazon is creating a delivery network to crush UPS. And that's why you should sell.

Yes, it's true. You should sell UPS. But not because of Amazon. Amazon may be a long-term threat, but investors are blowing it out of proportion. The real reason you should sell is because of massive macroeconomic headwinds. These macro drivers trump any problems Amazon may cause.

UPS is in the business of making deliveries. They're the busiest and most profitable when the economy is booming. But that's not what's currently happening in the US. Our economy is slowing.

The faltering economy along with lower oil prices and a stronger dollar are killing UPS.

But before we get into that, let's first clear up the confusion about Amazon.

Amazon Is Not The Threat Here

As the story goes, the relationship between UPS and Amazon has been on the rocks lately. Costs became too much and forced UPS to raise their prices. Amazon was not pleased. You don't raise prices on King Bezos. You only lower them. Bezos was famously quoted as saying:

Your margin is my opportunity.

With this kind of attitude, higher prices won't work. Especially when Bezos' entire business centers around undercutting everyone.

Rumors have now surfaced that Amazon is in talks with Boeing to lease jets for an air-cargo business. There are also reports that they purchased a large amount of trailers for their own trucking business. Add this to their drone plans and Uber)-style metro delivery system, and you can see a strategy forming. This is what scares investors. They worry that Amazon will grow to become self-sufficient for deliveries. They won't need UPS anymore. Investors not only think that the resulting lack of

This article was written by

Macro Ops profile picture
Macro Ops is a global macro research and education firm.

Disclosure: I am/we are short UPS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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