Hard to ignore improving data points: Results from our survey of over 300 parcel shippers are consistent with many key themes of our freight thesis and reinforce that recovery is underway. We continue to believe EPS estimates are too low across freight as both volume and operating leverage are likely to surprise. In parcel, we admit a fair amount of good news is now in the stocks, particularly regarding int'l airfreight. However, if margins at FDX and UPS can return to prior peak levels within the next few years, there is still notable upside in the shares from current levels.

Key Conclusions from our Survey:
1) Shippers indicate pricing is on the mend, but may be growing at a more modest rate than bulls expect. Large shippers have more moderate rate expectations than small shippers.
2) Shippers expect international parcel volumes will remain strong, while restocking trends appear to be supportive of better ground volumes in the second half.
3) The recovery in premium products will be slow — which is consistent with what UPS saw in its most recent results. The shift toward B2C shipping continues.
4) According to respondents, when they have switched carriers, FedEx seems to be winning share.
5) Perceptions of service in the parcel industry remain at very high levels despite a rebound in volume.

Still constructive on freight, prefer heavy-asset plays. We expect freight volumes will continue to surprise to the upside, even after large 1Q10 EPS revisions. Given that, we recommend clients stay long heavy-asset transports like rails and parcel. Our shipper survey suggests that while trends in international air shipping should stay strong, domestic has yet to show a pick up. As confidence in the recovery grows and shippers begin to restock inventories in a more material way, we believe this trend will start to reverse. We would be positioned in surface transport stocks, especially the rails, for the upcoming restocking.

Industry View: Attractive

Read the complete report by downloading the PDF/Media/News/RI_PARCELRETURNS14_0.pdf

The full report also contains analyst certification and other important disclosures relating to the companies mentioned in this email. 

For important information and disclosures regarding specific companies, derivatives, or other instruments discussed in this e-mail, please refer to latest research report, if attached and/or hyperlinked to this email, or by logging on to Equity Research via Morgan Stanley's Client Link portal at http://www.morganstanley.com. You may also refer to the Morgan Stanley Research Disclosure Website at www.morganstanley.com/researchdisclosures.  

This document is copyrighted by Morgan Stanley and is intended solely for the use of the Morgan Stanley client, individual, or entity to which it is addressed. This document may not be reproduced in any manner or re-distributed by any means to any person outside of the recipient's organization without the express consent of Morgan Stanley. By accepting this document you agree to be bound by the foregoing limitations.

This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. Morgan Stanley may advise the issuers mentioned herein or deal as a principal in or own or act as a market maker for securities/instruments mentioned herein. The research and other information provided herein speaks only as of its date. We have not undertaken, and will not undertake, any duty to update the research or information or otherwise advise you of changes in the research or information.
Morgan Stanley is providing access to its Research as a courtesy to PARCEL readers. Therefore, Morgan Stanley does not undertake to advise PARCEL readers of any changes in the opinions or information set forth in these materials. You should note the date on each report. For important Morgan Stanley conflict disclosures related to companies that are subject of the Research, please refer to the disclosures at the end of the Research or please see the Morgan Stanley Research Disclosure webiste at www.morganstanley.com/researchdisclosures.