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Why Shares of United Parcel Service Are Down Today

What happened

Shares of United Parcel Service (NYSE: UPS) traded down more than 4% on Monday, outpacing the broader market decline. The coronavirus is quickly evolving into a global threat, and that is putting shipping companies under pressure.

So what

Headlines over the weekend about the coronavirus' aggressive spread in Italy and South Korea have markets spooked on Monday, with fears growing that the outbreak won't easily be contained and will weigh on global trade well past the current quarter.

The International Monetary Fund over the weekend estimated that the virus would reduce global Gross Domestic Product by at least 0.1%, and brought down the full-year China growth forecast by 40 basis points.

UPS is having trouble filling its planes leaving China. Image source: United Parcel Service.

UPS and other companies tied to global trade are likely to at least feel a temporary impact in the current quarter due to the virus. CEO David Abney, appearing on financial television on Monday morning, said that UPS planes are departing China without full loads. With the outbreak spreading to new countries, the severity of the impact and the length of the disruption are likely to grow.

Now what

Although the coronavirus impact should be temporary, and spread across vast swaths of the economy, UPS also has some company-specific issues. Deutsche Bank analyst Amit Mehrotra in a note Monday said that upward of 18.5% of UPS domestic revenue is tied to, a company that has a well-established history of dumping transport partners with little notice.

UPS has argued that it has been able to maintain its relationship with Amazon because it provides services that the online giant values. But Mehrotra notes that the exposure raises "very valid questions" about risk.

On a day where investors are looking for excuses to head for the exit, coronavirus concerns and UPS' Amazon concentration are providing ample reasons to sell out of UPS shares.

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