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Lee opened the conversation by pointing to the timing of the cargo-plane crisis. Just as peak shipping season begins, both FedEx and UPS have had to pull aging aircraft from service following a tragic explosion. I told him this type of shock is exactly what investors overlook until it hits the tape. These older planes are workhorses of global distribution networks. When they suddenly disappear from circulation, the financial damage can be immediate.
Capacity Squeezed at the Worst Time
As soon as we talked through the implications, the holiday pressure became obvious. With planes grounded, packages will move more slowly. Lee noted that delays are almost worse for these companies than higher prices. Consumers expect frictionless delivery in December, and any disruption can damage brand perception. Both of us agreed that the companies will have difficulty absorbing the shock without some financial impact.
Ripple Effects Across the Supply Chain
I explained that once FedEx and UPS lose capacity, the strain shifts elsewhere. The postal system picks up overflow. Amazon’s growing logistics arm absorbs what it can. But no system is built to replace major air cargo capacity on short notice. For investors, it becomes a reminder that reliance on a concentrated supplier or equipment pool can turn into a risk event with no warning.
I gave Lee an example from the autos sector. A fire at a major aluminum facility has hampered Ford’s ability to source material for the core F-150 line, which accounts for more than a third of its U.S. sales. That is the kind of upstream problem that can flow directly into revenue, margins, and eventually the stock.
A Season to Watch
Lee and I agreed that this holiday period could prove more fragile than investors expect. If the grounded planes are not returned to service quickly, FedEx and UPS will face cost pressure, delivery bottlenecks, and potentially customer churn. The supply chain has improved significantly since the pandemic-era bottlenecks, but sudden outages like this show how easily conditions can deteriorate.
Transcript:
[00:00:00] Doug McIntyre: Let’s go to FedEx and UPS for a minute. Because of that plane explosion, they’ve had to take a bunch of their, those planes off. Yeah. So this is just a good supply and demand story. Lee, one of the things that happened, as you know, there was a tragic incident, with a, a plane going down and UPS and FedEx are now taking all those planes out of service.
[00:00:26] Doug McIntyre: Yeah. They’re very old planes. They are not used for passenger, no traffic at all. But they are, they’re workhorses for these large distribution companies, so. This is an example of something that happens that nobody expects, and it completely changes the finances of the companies that are involved with it.
[00:00:47] Doug McIntyre: You could actually say earnings get dinged at FedEx and UPS if they’ve gotta take a huge number of these planes offline and can’t put ’em back online for a while.
[00:00:58] Lee Jackson: Well, well especially look what time of year it is. It’s the holiday season. Yeah. Which is their busiest season. So yeah, there, there’s, there’s no reason to think, there won’t be a, if there won’t be an increase in prices, there’ll be a delay in deliveries.
[00:01:13] Lee Jackson: And what’s worse than the holidays, I would say delay in deliveries. So, yeah. I, I think it could very well have, have an impact.
[00:01:22] Doug McIntyre: Well, and, and, and that sort of cascades, I mean, it’s. Then you have to rely more on the postal system and, you know, some of, in the, the, the modest Amazon system, it’s, it’s something that people ought to look at as an investor.
[00:01:39] Doug McIntyre: If you see a company that’s reliant on a product from another company, a lot, you know, it has to lean on that second product You always wanna watch if there’s a problem with a supplier. A supplier that is a has a meaningful piece of a business when that supplier gets in trouble. Guess what? And I’ll give you a very good example.
[00:02:03] Doug McIntyre: there’s a facility that makes aluminum for the car companies, right? Got hit by a huge accident, a fire. Well, guess what? Ford is having trouble sourcing aluminum for, guess what The F-150, not the lightning, the regular. Now that’s their number one selling vehicle. It’s 38% of their unit sales in the United States every year.
[00:02:25] Doug McIntyre: So it’s just another example of if you’re an investor, don’t just watch revenue and the bottom line, watch whether or not you have supplier issues. You know, whether it’s apple and chip, whatever it might be. Yeah. Very often that will cascade into earnings and then into the stock price.
[00:02:44] Lee Jackson: Well, and you know, we had that issue a few years back where all the, you know, all the supply chain issues with all the boats backed up and, and it, it was just, it was a nightmare.
[00:02:55] Lee Jackson: And yeah, I, I, it’s gonna be interesting to see how the holidays works out this year because boy, it, this could be a mess unless they can get those planes back in service pronto.
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