What’s News in Earnings: How Logistics Operators Are Navigating Trade War Turmoil

Summary

WSJ What’s News Episode Summary

Title: What’s News in Earnings: How Logistics Operators Are Navigating Trade War Turmoil
Host: Liz Young, The Wall Street Journal
Release Date: August 1, 2025

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Introduction

In this episode of What’s News in Earnings, host Liz Young delves into the logistics industry, highlighting the pivotal developments and challenges faced by key players amid ongoing trade tensions and market fluctuations.

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Major Railroad Merger Announcement

One of the standout stories of the latest earnings season is the proposed merger between two of America's leading railroad companies. Liz Young reports that Union Pacific, operating west of the Mississippi River, and Norfolk Southern, with lines east of the river, plan to merge, potentially creating the first coast-to-coast rail operator in U.S. history.

Hamid Mokadam, CEO of Prologis, comments on the announcement during the earnings call:

“[...] this merger would help smooth out delays at these interchanges. [...] It could take two years.”
[02:21]

The merger aims to enhance transit times by streamlining the transfer process between the two companies' rail networks. However, this move has raised concerns among various stakeholders:

• Shippers are wary of potential service disruptions and increased rates due to reduced competition.
• Labor Unions fear job losses and seek assurances on employment terms.
• Communities express concerns over longer trains causing traffic blockages at crossings.

Liz Young emphasizes the historical context and potential implications:

“Shippers who remembered service meltdowns of past railroad mergers are quite wary about future railroad mergers.”
[03:27]

The motivation behind the merger, according to Jim Venner, Union Pacific’s CEO, is the longstanding vision of a transcontinental railroad, now deemed feasible due to favorable political and operational climates. Additionally, the financial incentives for investors play a significant role in pushing this deal forward.

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Impact of the Trade War on Logistics Companies

The ongoing trade war, particularly under President Trump's administration, has significantly influenced the logistics sector. Tariffs and shifting trade policies have forced companies to adapt swiftly to fluctuating freight demands.

Key Impacts:

1. Importers’ Behavior:
   Importers have been accelerating orders to circumvent impending tariffs and subsequently reducing orders when duties escalate.

2. Freight Demand Slump:
   Post-pandemic, the logistics industry continues to recover from a prolonged downturn in freight demand, complicating recovery efforts.

3. Shifts in Shipping Lanes:
   Companies like FedEx and UPS have reported substantial capacity reductions in the crucial China-to-U.S. shipping lanes:

   “The capacity on that lane dropped by more than 30% in the month of May and June.”
   [06:27]

4. Regulatory Changes:
   The White House's decision to suspend de minimis treatment for low-value shipments introduces new complexities:

   “It's never a dull day in the life of a logistics professional.”
   [07:47]

Liz Young summarizes the uncertainties:

“Both companies have withheld their outlook for their respective fiscal and calendar years.”
[06:27]

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Optimism Amidst Challenges

Despite the hurdles, some companies within the logistics sector are optimistic about future prospects. Hamid Mokadam shares insights from his conversation with Prologis' CEO:

“The company is seeing more demand for warehouses purpose-built for specific tenants.”
[01:44]

This specialization indicates a potential area of growth as businesses seek tailored logistics solutions to navigate the complex trade landscape.

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Preparing for the Peak Season

As the industry approaches its busiest period, often referred to as the peak season, logistics companies are bracing for increased demand driven by back-to-school and holiday shopping.

Current Projections and Preparations:

• Uncertainty in Demand:
  Companies like UPS are experiencing difficulty in forecasting the exact nature of the peak season:

  “They just don't know what shape or form it would take.”
  [08:28]

• Adaptive Strategies:
  Logistics providers are preparing to adjust resources dynamically to meet fluctuating customer demands, despite the unpredictable macroeconomic environment.

• Market Adaptations:
  Recent trade agreements offer some clarity, but unexpected developments continue to pose challenges:

  “[...] curveballs ahead. So we don't have very fixed projections of what peak would be.”
  [08:28]

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Conclusion

The logistics industry is at a critical juncture, balancing ambitious expansions like the Union Pacific-Norfolk Southern merger with navigating the tumultuous waters of the trade war. Companies must remain agile, adapting to regulatory changes and shifting market demands to thrive in this challenging environment.

Liz Young wraps up the episode by acknowledging the dynamic nature of the logistics sector and the continuous adjustments companies must make to stay competitive:

“It's never a dull day in the life of a logistics professional.”
[07:47]

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Notable Quotes

• Hamid Mokadam:
  “The one thing that stood out this earnings season is the railroad merger.”
  [02:21]

• Prologis CEO Hamid Mokadam:
  “The company is seeing more demand for warehouses purpose-built for specific tenants.”
  [01:44]

• Liz Young:
  “Shippers who remembered service meltdowns of past railroad mergers are quite wary about future railroad mergers.”
  [03:27]

• Hamid Mokadam:
  “It's never a dull day in the life of a logistics professional.”
  [07:47]

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This comprehensive overview captures the essence of the episode, providing listeners with an in-depth understanding of the current state and future prospects of the logistics industry amidst significant economic and political challenges.

Transcript

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[Liz Young]

Hey listeners, it's Friday, August 1st. I'm Liz Young for the Wall Street Journal. This is what's news and earnings, our look at the broad themes that stood out in the latest earnings season. Today we're taking a look at the logistics industry, those behind the scenes companies you may not think much about, but that are responsible for delivering you the goods you use every day. One of the biggest headlines of this earnings season has been the news that two railroad giants plan to merge in a deal that would create the first coast to coast rail operator in U.S. history. The deal would tie together the networks of Union Pacific, which operates to the west of the Mississippi river, and Norfolk Southern which has lines to the east. Beyond the railroads, companies such as warehouse operator prologis, trucking giant JB Hunt and parcel carrier United Parcel Service have been navigating rapid shifts in freight demand due to to President Trump's trade war. Importers have rushed in goods to beat tariffs and slowed orders when duties have increased. At the same time, the logistics sector continues to grapple with a years long slump in freight demand following the pandemic. Some companies in the sector see reason for optimism. When I spoke to Prologis CEO Hamid Mokadam after their earnings report, he told me the company is seeing more demand for warehouses purpose built for specific tenants.

[Esther Fung]

People, particularly the big companies with real balance sheets and real businesses have been putting off these growth expectations and these growth decisions for a long time and I don't think they can postpone it anymore unless they're prepared to lose business, which they're not.

[Liz Young]

To break down what we've learned so far in the second quarter, we're here with Esther Fung. Esther writes about parcel shipping companies, freight railroads and the logistics industry for the Wall Street Journal here in New York. Esther, thanks for joining us today.

[Hamid Mokadam]

Sure thing.

[Liz Young]

So what have we heard from transportation companies so far this earnings season? What's been standing out to you?

[Hamid Mokadam]

The one thing that stood out this earnings season is the railroad merger. If you listen to the earnings call on Tuesday that Was supposedly Norfolk southern's earnings call. But the companies took that time to announce the merger, and there were quite a number of times they use the word historic. What they have proposed is that this merger would help smooth out delays at these interchanges. Where one railroad switches to another railroad, they will have to pass on railcars from one train to another. Now, this is going to be a long process. The two executives mentioned that this could take two years. Several groups of people have already started to look into this merger to see how it would affect them. Shippers, communities, other railroads, labor unions. They're all going to want to provide their comments about how this could affect them, what kind of concessions they require for this merger to go through, what.

[Liz Young]

Are some of the things that some of those groups will be looking for.

[Hamid Mokadam]

So for the railroads, they're excited by this because they see that this would speed up the time in transit for the rail cars to move from west to. To east. Shippers, for example, they would be very careful. You're merging two gigantic franchises. There might be differences in how they run some of their operations. There might be some overlaps in some locations, and you're combining franchises with thousands and thousands of rail cars. So shippers who remembered service meltdowns of past railroad mergers, they're quite wary about future railroad mergers. They are also about being beholden to just one carrier, and if that carrier would then have a lot of power over setting rates for the labor union. They've definitely also seen the service meltdowns in the past railroad mergers. They've also felt that the mergers didn't actually increase the number of jobs available, and they're going to be protective of their jobs. They're definitely also going to want to have their say in train lengths. We've seen, and I've reported on this last year, that trains have gotten longer and longer. They've definitely complained about having to walk a longer length to try and fix something if the train breaks down. For communities, they've also complained about train length, how it has blocked crossings, and when the long trains can't fit into a yard, it's built over to outside the yard. So communities are also going to express their concerns about the railroads.

[Liz Young]

What do you see as the motivating factor behind their decision to merge?

[Hamid Mokadam]

Union pacific's chief executive, Jim Venner, has talked about how he's always thought that a transcontinental railroad is the most obvious and logical thing that the railroad industry needed in the United States. For a long time, the regulatory environment didn't really support such a dream. And now he feels that both the political and operating environment supports such a proposal. Norfolk Southern's CEO Mark George, he was also on board with Jim Venner's vision. And of course I would be remiss to not talk about the large payouts that a lot of investors would get from such a deal as well. So yes, there was definitely some Wall street influence on this too.

[Liz Young]

So taking a step back, looking at the whole logistics industry beyond the railroads, we've also seen a lot of impacts over the past few months from tariffs and of course this trade war that's going on. So we've seen trucking companies, warehouse owners, parcel carriers, all affected by tariffs in some way or another. So can you walk us through just a little bit of how some companies are being affected by the trade war so far and how they're responding?

[Hamid Mokadam]

The parcel companies, FedEx and UPS, they've both, in the most recent earnings call talked about how there's still a lot of uncertainty in the macroeconomic environment as well as in the trade environment. And they have both also withheld their outlook for their respective fiscal and calendar years. And both companies talked about how they're very lucrative China to US lane where they carried lots and lots of cargo from China to the U.S. the capacity on that lane dropped by more than 30% in the month of May and June. UPS said that earlier this week. And while both companies also said that other lanes have picked up in response, trade doesn't really just dry up overnight, it actually moves around. This is also something that transportation companies would have to adapt to. Can they move their resources around fast enough to pick up on changes that their customers are demanding? And also earlier this week, the White House also said that it was going to suspend the de minimis treatment for low value shipments. This will affect cargo airlines that bring a lot of shipments from E commerce merchants abroad to U.S. customers. For regular shoppers like you and I, those packages that used to come into the US Duty free, it's not going to be duty free anymore. Who's going to collect these tariffs? Would someone knock on your door and say, hey, before I pass you this package, you're going to have to pay this tariff? Would that happen? That would be a logistical nightmare. So we don't know the mechanics of how this is all going to play out yet, but it's never a dull day in the life of a logistics professional.

[Liz Young]

We're heading into what's typically the busiest season of the year for logistics companies, what they call the peak season. Retailers are getting ready for back to school holiday shopping. What are we seeing so far this year in terms of what logistics companies are projecting for the peak season and how they're preparing?

[Hamid Mokadam]

So this is really tricky. Sorry to refer to UPS again, because it's the earnings call. This week they mentioned that their customers can't also provide a peak projections this year there will be a peak. They just don't know what shape or form it would take. People still want to celebrate Thanksgiving, Christmas, but they're not sure how consumers would react and change to some of the macroeconomic changes. While some people have said that the recent trade agreements that the US have made with several countries have helped provide some clarity, there might still be curveballs ahead. So we don't have very fixed projections of what peak would be and they're all operating with a fingers crossed mentality.

[Liz Young]

Thank you so much, Esther, for joining us.

[Hamid Mokadam]

Thank you. It's been a pleasure.

[Liz Young]

And that was what's News in Earnings. Today's show was produced by Zoe Kulkin and Pierre Bienname with supervising producer Michael Kosmides. Later today we'll have the PM edition of what's News out for you as usual. And we'll be back later this earnings season, diving into another industry. Until then, I'm Liz Young. Have a great day.

[Hamid Mokadam]

Sam.