Thankfully Bailouts Haven't Been Expanded to Overnight Delivery Companies

Traditionally, recessions have been the market's way of pruning the excess 'growth' in certain sectors of the economy, clearing the way for the stronger names to thrive.  During the 1990s, technology stocks multiplied like rabbits to the point where the sector made up one third of the S&P 500.  At the turn of the century, the economy hit a rough patch and the tech sector crashed.  By the time the economy rebounded, most of the companies that were formed during the boom no longer existed, but the ones that were strong enough to weather the storm were made stronger and flourished (Google is one example).   Looking further back, the existence of the "Big Three" automakers can be traced back to the consolidation in the auto industry that took place during the Great Depression. 

In the current recession, the area of excess heading into the downturn was the financial sector, but unlike prior periods where the weak limbs were allowed to fall off and die, these weaker links are being artificially propped up.  Just like in little league where every kid now gets a trophy, or in some leagues where they have even stopped keeping score, if nobody is allowed to lose, nobody can win.  While the intentions may be good, the results almost never are.

Over the last several days, lawmakers in Washington have been debating whether or not to expand the various bailout measures such as the TARP program beyond the financial sector.  Before all is said and done, it is more than likely that the government will bailout the automakers, and just last night the Treasury expedited American Express' request to become a bank.

Thankfully, though, bailouts haven't been extended to the overnight delivery sector yet.  Yesterday, Deutsche Post, the parent company of DHL, announced that it was shutting down its US delivery operations and cutting 9,500 jobs.  After several years of trying to boost its market share, DHL decided that the continued costs of operating their delivery infrastructure did not justify the benefits of having 4% market share. 

While no one ever likes to see job cuts, in a world when we can easily fax or email documents, how many national overnight carriers do we need?  Granted, there is always a need to have an original document or a part shipped overnight, but even in boom times, do we really need four companies running four separate operations (DHL, FDX, UPS, US Postal Service) as well as other smaller independent and regional carriers?  Regarding the financial sector, various bailout programs are eliminating the usual consolidation that takes place during the downslope of the economic cycle.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke. 

Comments

[marc russo]

this is absolutely correct. All this bailout does is hasten the demise of the US as the undisputed economic heavyweight.

Capitalism is destructive as well as constructive

I guess its hard to let an unprofitable sector go when they have been filling your campaign contribution coffers all these years and you want on the board after you retire from Congress/Senate.

[JR]

Wow, all these years I thought I was the only one screwed out of making the little league all-star team under the name of everyone should be chosen sometimes even if they were benchwarmers.