FedEx Alters Asia Service; UPS Announces Results

by LJM Group

Companies that do a lot of shipping will be interested in the latest news about Fed Ex and UPS. Fed Ex recently announced it will reduce its shipping capacity to Asia, and UPS announced its operating revenues for 2012.

According to a recent article by Post & Parcel, FedEx revealed that it is stepping up its efficiency drive as it continues to struggle with international express customers opting to use less expensive, less profitable services.

“A general weakness in the international air freight markets has compounded problems in the Memphis-based integrator’s latest financial results, which came in below expectations for the third quarter,” the article states. “Figures issued today showed that FedEx Corp revenue grew 4% to $11 billion for the quarter that ended February 28. Operating income fell 28% year-on-year to $589 million, while net income dropped 31% to $361 million for the quarter.”

FedEx saw its margins coming under pressure thanks to the shift of customers towards less profitable economy services, with operating margins falling more than two percentage points to 5.4%, the article states. International revenues came in $100 million below expectations during the quarter, FedEx said.

(LJM can help with FedEx and UPS contract and rate negotiations.)

Frederick W. Smith, the Fedex Corp chairman, president and CEO, said the third quarter had been “very challenging.” “In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks,” he said. “We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track.”

FedEx saw 12% year-on-year volume growth in its cheaper FedEx International Economy service, while the premium FedEx International Priority volumes grew only 2%. The shift to economy saw revenue per package down 3%, according to Post & Parcel.

Fedex has already been in the process of adjusting its air fleet and downsizing its workforce at the FedEx Express and FedEx Services divisions, with a staff buyout program currently projected to cost between $450 million and $550 million this year.

It is unclear how FedEx rates and FedEx customer service will be affected by the changes.

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In other news, Forbes reports that UPS generated revenues of $54.1 billion and operating income of $1.34 billion in 2012, which was dragged down by mark-to-market charges of around $4.8 billion associated with the pension plan.

The Forbes article states that UPS’s U.S. domestic package volume grew by 2.8% year-over-year in 2012. “The volume growth was fueled primarily by continued strong growth in retail e-commerce as an increasing number of consumers are migrating to the new way of shopping, however growth in business-to-business volume was muted reflecting the lack of growth in small and medium-size enterprises,” Forbes wrote.

UPS also reports that its international package division experienced a 1% decline year-over-year in 2012, which it attributed to a slowdown in emerging economies and unfavorable currency impacts.

Forbes quotes UPS as saying it is positive on the long-term growth prospects of the international operations based on two broad-based industry-wide trends: emerging markets growth and expansion of global trade.

LJM will continue to track development affecting the major carriers and report on changes in UPS rates and FedEx rates. We are happy to assist you at any time with a UPS audit; a FedEx audit; UPS contract and rate negotiations; FedEx contract and rate negotiations; as well a parcel auditing and small parcel shipping audits.

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