David Brancaccio: Worried about Spanish banks, and China’s apparent reluctance to stimulate its economy, many investors today ran scared from the world economy and into the perceived safety of U.S. government bonds. 10 year T-notes were in such demand the yield fell to a 60 year low. But even so, some companies are buying heavily into the world economy. For instance FedEx said today it’s buying the big shipper in Brazil. The Memphis based company will pay $6.8 billion for Rapidao Cometa Logistica e Transportes.
David Ross covers shipping for Stifel Nicolaus.
David Ross: Morning.
Brancaccio: Why do you think FedEx is choosing to do this acquisition right now?
Ross: You know, part of FedEx’s international expansion strategy, where they are continuing to add on little nice bolt-on deals to expand their global footprint, UPS decided to go with the big acquisition, you know recently announcing the merger with TNT that’s probably going to be finalized sometime in the third quarter, but FedEx is choosing instead to go piece by piece and do smaller deals that we think are less risky.
Brancaccio: What do you make of the theory that shipping companies are a decent barometer of the world economy, because we are in the midst of a lot of economic uncertainty around the world.
Ross: Yes, and companies like FedEx that move packages all around the world every day are certainly very good indicators of economic activity, and you know, even though the global economy is somewhat soft right now we still think it is a long term growth story, and FedEx has taken this opportunity to expand their global footprint so that when volumes do recover, they can be there and handle those volumes.
Brancaccio: And with this acquisition, they’re going to be able to get packages to and from Brazil pretty effectively I would assume.
Ross: Well they already do. This is actually a partner of theirs they’ve been working with for 11 years in Brazil. So when customers have a shipment for example New York to São Paulo, FedEx would pick that up in New York, route it through one of their hubs, fly it down to São Paulo, and then hand it off to the Brazilian company for ultimate delivery. Now that it’s just going to be a FedEx employee on either end, so it’s going to give FedEx more control of the overall process, which should lead to higher service levels and more quality control.
Brancaccio: David G. Ross covers shipping for Stifel Nicolaus. Thank you very much.