In terms of pricing, FedEx and UPS are still moving in lockstep, but their financial returns are very different.
Inflation
The two major integrators have similarly increased their rates for the upcoming year as they have in the past. They are increasing fees for 2023 by 6.9% after raising domestic parcel charges by 5.9% last year.
Late in September, FedEx revealed its revised pricing, and a month later, UPS did the same.
On December 27, the new UPS prices will go into effect along with hikes in accessorial fees for a number of services, such as home deliveries, deliveries to distant locations, and items that need extra handling.
Both have used rising costs, primarily as a result of inflation, to justify their increasing fees. Although the two keep raising the rates in lockstep, their outcomes sharply differ.
UPS released its third quarter results yesterday, topping Wall Street expectations with an operating profit increase of 6% on an adjusted basis to $3.1 billion and sales growth of 4.2% to $24.2 billion.
Dramatic difference
During the quarter, the average daily volume decreased by 2.1%, while revenue per package increased by 8.6%, in accordance with management’s concentration on higher-yielding business. According to UPS, domestic daily volumes decreased less than anticipated, however, forecasts for international traffic were not met, mostly because of inflation, lockdowns in China, and the conflict in Ukraine.
Revenue from the international package business increased by 1.7%, although operational profit slightly declined. Domestic parcel revenue increased by 8.2%, with revenue per piece increasing by 9.8%, but the Supply Chain Solutions segment reported a revenue decline of 6.3% as a result of less activity in air and ocean forwarding. Its adjusted operating margin, however, increased to 11.5%.
These results stand in stark contrast to FedEx’s most recent quarter, which had an adjusted net earnings decline of 23.9% for the quarter that ended on August 31 and was characterised by one financial expert as the company’s lowest performance in 20 years. FedEx revised their fiscal year 2023 projection and disclosed cost-cutting initiatives totalling between $2.2 billion and $2.7 billion.
The difference in volume decline between the two competitors was described as “dramatic” by an industry consultant.
Operational margins
FedEx CEO Raj Subramaniam, who had forecast significant growth three months prior, attributed the downturn to waning demand and volume softness as well as rising operating expenses.
Carol Tomé, his UPS counterpart, is optimistic, though. The management reiterated its September-set financial goals for the entire year, forecasting revenue of roughly $102 billion and adjusted operating margins of roughly 13.7%. Due to a decrease in the utilisation of hired aircraft to supplement its own capacity, it lowered its forecast for capital expenditure by $500 million, to $5 billion.
As customers resume their pre-Covid behaviour, Ms Tomé thinks that the peak season will begin later than it did last year and that volume growth will be a little slower than it was in 2017.
Busy season
This is primarily due to Amazon shipping a larger proportion of its packages through its own fulfilment network, which should free up space for other carriers, according to the company.
She proclaimed that UPS was “prepared for the busy season.”
The increased parcel fees, however, won’t be welcomed by shippers or customers. Retailers are considering raising their own delivery fees, while 58% of US consumers anticipate reducing non-food spending this holiday season, according to ShipStation’s recently released Holiday Shopping Trends report, which is based on feedback from over 8,000 consumers and 800 merchants in eight countries.
Online purchases that can be picked up in person appear to be on the upswing, helped along by the growing clamour from businesses wishing to charge for returns.
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Source: The Loadstar
