UPS is still suffering from retail downturn and weak freight markets

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The consumer expenditure in the US is growing at a remarkable rate, yet the logistics service providers whose businesses are driven by consumer demand have yet to benefit from this upsurge.

An example is UPS, who have just published third quarter results that saw a 12.8% fall in revenue year-on-year. ‘Adjusted’ operating profit fell by 48.7%. The main cause of this sharp fall was a fall in daily volumes of express packages of 11.5%, with business-to-consumer volumes falling harder than business-to-business. However, UPS asserted that from the middle of August to September, volumes started to recover despite what the company called “a challenging retail backdrop”. On the positive side, revenue per package increased by 2%, with better mix of service types and robust rates supporting prices.

‘US Domestic’ express revenue fell by 11.1% and adjusted operating profit fell by 60% but ‘International’ business managed lower falls in adjusted operating profits, with a 32.8% drop. The latter seems to have been due to better costs control, not least as revenue per package edged down by 1.4%.

The ‘Supply Chain’ business’ results also saw a continuation in the downturn. Year-on-year revenue fell by 21.4% and adjusted operating profit was down by 40.1%. UPS ascribed these falls to “soft global demand” in the airfreight sector and implied that rates in container shipping were also sharply down with the comment that it had grown volumes in Ocean freight “driven by the retail sector”. UPS also commented that the truckload brokerage had struggled in a difficult market. However, the company said that the contract logistics part of the business had “delivered revenue and operating profit growth”. The latter comment suggests that the performance of the forwarding business was even worse than the numbers for the whole division.

A slighted muted message from the CEO, Carol Tomé, referred to “unfavourable macro-economic conditions” but she did mention that UPS was “looking ahead, we are well-prepared for the peak holiday season”. If US consumer spending is any guide, she might have grounds to be looking ahead optimistically.

Author: Thomas Cullen

Source: Ti Insights

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