By Alex Kimani
“People have money and they’re not spending it on going out to the theater, they’re buying goods, CEO Black Gold Investors LLC. The transport industry has been one of the hardest hit by the pandemic. To limit transmission of the virus, most governments have been forced to enforce massive restrictions on public transport, leading to revenue losses of up to 70% for operators.
Yet, there’s one corner of the transport industry that has actually been thriving: eCommerce delivery.
The U.S. freight business has emerged as one of the rare winning sectors during the pandemic with traffic–and profits–up substantially since lockdowns started in late March.
Data from the U.S. Federal Highway Administration, courtesy of Bloomberg, has revealed that large trucks have driven 5% more miles over the past 30 days than they did a year before. In fact, business has been booming so much so that FedEx Corp. (NYSE:FDX) and UPS Inc. (NYSE:UPS) have started setting shipping limits ahead of the holiday season.
Indeed, consumer shopping behavior has changed dramatically during the pandemic, with two-thirds of consumers reporting that they have elevated expectations of companies’ digital capabilities with many brick-and-mortar stores closed.
But will the surge in eCommerce deliveries save the battered oil and gas sector?
Unfortunately, we think it might do so in the short term but will fall woefully short in the long run.
EVs taking over the delivery chain
Bloomberg has reported that U.S. trucking companies have been rejecting about 25% of requests for their business due to a shortage of drivers and high demand, way above the 6% rejection rate average in 2019.
Freight companies have also confirmed this trend, with James Foote, CEO of giant rail company CSX Corp. (NASDAQ:CSX), reporting that volumes ended the third quarter above pre-Covid levels.
The surge is expected to intensify thanks to the holiday shopping frenzy before Christmas, with global delivery company, DHL, saying it expects peak shipment quantities to be 50% higher compared to a year ago.
But this trend is being driven by an even more potent force: Online shopping by Millennials.
There are several megatrends that have been dominating the business world over the past decade, and few are bigger than a surge in eCommerce largely driven by young adults. Indeed, millennials have been powering a massive eCommerce boom.
Millennials and their smartphones are inseparable, and one of the activities they love doing on their hand-held devices is online shopping. Indeed, Joan Driggs, vice president of content and thought leadership at IRI, has told eMarketer that millennials are omnichannel consumers in the truest sense of the term, equally at home shopping online as they are shopping in-store.
Millennials also constitute the most digital demographic among U.S. consumers, with nearly 86% frequently shopping online compared to 78% of Generation X and 61% of baby boomers.
There are no prizes for guessing which eCommerce site millennials frequent most: Amazon Inc. (NASDAQ:AMZN). Amazon not only serves as the starting point for many millennials when they search for products online but many tend to fully commit with 73% of millennials being Amazon Prime members.
Amazon is the second-most-popular stock amongst millennials, accounting for 9.8% of their portfolio holdings.
That appears to be wise investing since digital-impacted sales have been forecast to continue growing and exceed $2.4 trillion by 2022, good for more than 58% of total retail sales.
The ecommerce boom has been offering massive support for the transport sector. In fact, the U.S. trucking industry is actually doing better than it did a year ago.
That could potentially boost oil demand, with the transport industry responsible for nearly half of oil consumption worldwide.
EVs spoil the party
There’s a good chance that Covid-19 might permanently change shopping behavior. As one of the biggest eCommerce players in the world, Amazon is bound to be one of the biggest beneficiaries of this megatrend.
It, therefore, comes as little surprise that eCommerce stocks have been flying: AMZN is up 63.4% YTD while Alibaba Group (NYSE:BABA), Shopify Inc. (NYSE:SHOP), and eBay Inc. (NASDAQ:EBAY) have gained 46.0%, 128.6% and 32.4%, respectively over the timeframe.
However, a surging eCommerce sector might end up propping one of oil’s biggest nemesis–the EV sector–if Amazon’s recent move is any indication.
Amazon’s delivery fleet is made up of ~30,000 Amazon-branded delivery vehicles and 20,000 branded trailers. However, Amazon has pledged to have a fleet of 100K electric vehicles by 2030 on the roads thanks to its Climate Pledge and collaboration with EV startup Rivian. Amazon has increasingly been delivering its own packages, going from 20% to 50% in 2019.
With the ESG boom in full swing–and Amazon’s role as a global eCommerce trendsetter–there’s a big likelihood that other eCommerce players will take their cues from Amazon and opt for EV delivery fleets.
In other words, the EV sector, not the oil industry, might end up as the biggest winner in the eCommerce boom.