UPS expects vacation package surge to peak later this year

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Diving Brief:

  • UPS expects package volumes to peak later in December compared to 2021 as consumers move closer to pre-pandemic behaviors by buying later in the season, CEO Carol said Tuesday. Tomé during an earnings call.
  • The company also expects its volumes to grow at a slightly slower pace in the third to fourth quarters compared to a year ago as top customer Amazon delivers more of its own orders, Tomé said. This change should free up capacity in the company’s network for other shippers.
  • “It gives us the ability to invite additional customers into our network and provide them with great service during peak times, which we do,” Tomé said of the contractual agreement UPS and Amazon reached regarding delivery volumes.

Overview of the dive:

Last year was an unusual holiday season for parcel carriers as supply chain issues, tight inventory levels and consumers ordering earlier leads to lower demand during the traditional peak shipping period than expected.

“Everyone was like, ‘Buy early, buy early, buy early,'” Tomé said.

UPS forecast a more typical spike this year as low inventory and upstream congestion are no longer an issue. The company claims to have an in-depth knowledge of demand trends, as it works closely with large shippers before and during the peak to prepare its network for the surge in shipments during the holidays.

“We expect the peak to be a bit later and we are ready for that,” Tomé said.

Carriers have faced slowing global demand ahead of the holidays as businesses adjust to inflationary pressures and inventory gluts. UPS rival FedEx rolled out $2.7 billion savings plan last month after experiencing lower parcel volume and lower-than-expected revenue at its Express and Ground units

Experts and analysts claim that UPS has been performing at a higher level than FedEx lately. In the most recently reported quarters, FedEx’s net income fell 21%while UPS net income increased 10.9%. UPS also reaffirmed its financial targets for the full year.

“Even at the same level of price increases, UPS may hold up better than FedEx despite FedEx’s recent warning of slowing overall volume growth,” Third Bridge analyst Anthony DeRuijter said in remarks via email. “Our experts say UPS is hitting FedEx hard in its Sol segment. It delivers better and faster execution of network infrastructure initiatives, and the focus is on the SMB customer, where volume returns range from 20 to 40%.”

Tomé said UPS responded quickly to the slowing global economy, adjusting its network to match volume levels and focusing on growing the most profitable customer segments. Although average daily volume fell 2.1% year-on-year for UPS in the third quarter, its revenue per package increased 8.6%.

UPS is evolving its approach as it continues to deliver strong results under Tome’s “better, not bigger” earnings growth strategy.

“We are focused on controlling what we can control, and as part of our ‘better and bolder’ framework, we are combining digital capabilities with our integrated global network to continue to win in the most attractive segments of the market. , driving operational excellence and delivering best in class service for our customers,” said Tomé.

Carol N. Valencia