As Carriers Rebound, Shippers Regroup:  Insights from Q4 Earnings Reports and Strategies to Control Costs & Improve Efficiency

In the aftershock of recent reports from UPS and FedEx regarding Q4 earnings for 2023, retailers must once again regain their balance and look ahead to how the downturn in Carrier profits will impact business. Both UPS and FedEx reported a significant decline in 2023 earnings, signaling potential changes in the shipping industry that could affect retailers across the United States and beyond.

Businesses can expect Carriers to respond in various ways to recoup these losses, but they can mitigate the impact by taking a proactive approach. First, it helps to look at key details of the Q4 Carrier Earnings Reports and their potential effect on retailers. Armed with this information, you can explore effective strategies for maintaining control of shipping costs and ensuring optimal efficiency, despite measures by Carriers to recoup 2023 losses.

FedEx vs. UPS – Key Insights from Q4 Carrier Earnings Reports

As stated last year in Q3, “We’re having a lot of great conversations with legacy UPS customers,” said FedEx EVP and Chief Customer Officer Brie Carere,  when UPS was facing labor contract negotiations with the International Brotherhood of Teamsters. FedEx gained significant business from UPS due to the uncertainty and performance issues they experienced during the labor negotiations, when many longtime customers left in an exodus.

However, UPS seems to have rebounded, reporting that they topped fourth-quarter profit expectations for a 15th consecutive quarter. UPS also claims that by year’s end, they had recovered over half of those who temporarily switched to FedEx.

As this competitive rebound between the Carriers unfolds in 2024, shippers  can gain critical insight by comparing the key results of their Q4 Earnings Reports, and understanding the actions each Carrier will take as well as their predictions for growth. This is invaluable information for companies  to leverage when developing their shipping strategies during the year ahead.

UPS Q4 Earnings: UPS reported a 14% decrease in net income compared to the same period in the previous year. The company’s revenue for the quarter also fell short of analysts’ expectations, totaling $24.5 billion, a decline of 3.7% year-over-year. UPS cited increased costs related to labor, fuel, and network investments as key factors contributing to the decline in profitability. Key figures from the UPS Q4 Earnings Report:

• Consolidated Revenues of $24.9B, Compared to $27.0B Last Year
• Consolidated Operating Margin of 9.9%; Adjusted Consolidated Operating Margin of 11.2%
• Diluted EPS of $1.87; Adj. Diluted EPS of $2.47, Compared to $3.62 Last Year
• Declares a Quarterly Dividend of $1.63, a $0.01 Increase Per Share

2024 UPS Outlook: In 2024, UPS looks committed to making underlying improvements. When the economy recovers, the Carrier expects volumes to start improving again and predicts they will exit this year in much better shape. UPS predicts 2024 revenue to range from $92.0 billion to $94.5 billion, which is below analysts’ estimates of $95.57 billion. According to Brian Newman, CFO at UPS, revenue in the first half is expected to be “flat to down 2%” but will grow “4% to 8% in the back half,” with profits growing 20% to 30% in the third and fourth quarters.

In terms of delivery volumes, UPS aims to return to growth in the second half of 2023, with a focus on the US domestic package segment. Newman said, “We expect the revenue per piece growth rate to outpace the cost per piece growth rate beginning in the third quarter, and we expect to exit the year at a 10% operating margin.”

FedEx Q4 Earnings: Similar to UPS, FedEx experienced a decline in earnings for the fourth quarter of fiscal 2023, reporting a net income of $1.19 billion, down from $1.29 billion in the same quarter of the previous year. The company’s revenue for the quarter reached $21.9 billion, representing a modest increase of 2% year-over-year.

• Fourth Quarter Fiscal 2023 Revenue of $21.9 Billion, Diluted EPS of $6.05, and Adjusted Diluted EPS of $4.94
  
  
• Ended Fiscal 2023 with Revenue of $90.2 Billion, Diluted EPS of $15.48, and Adjusted Diluted EPS of $14.96
  
  
• Returned $2.7 Billion to Stockholders Through Stock Repurchases and Dividends During Fiscal 2023
  
  
• Introduces Fiscal 2024 Outlook, Including $1.8 Billion of DRIVE Cost Savings

FedEx noted challenges posed by supply chain disruptions, inflationary pressures, and macroeconomic uncertainties that continue to impact its financial performance.  Operating income from the company’s air-based Express unit dropped 60% during the quarter. This was partly due to falling volume from the US Postal Service, which has been shifting more packages from higher-margin air services to more economical ground services.

2024 FedEx Outlook: To reassure investors who are concerned about the Carrier’s ability to reduce costs and improve profits, FedEx indicates that it expects to repurchase an additional $1 billion of common stock during fiscal 2024. In a regulatory filing, FedEx also indicated that they expect to “continue to be pressured by volatile macroeconomic conditions negatively affecting customer demand for our services across our transportation companies” for the remainder of the fiscal year ending May 31.

For fiscal 2024, FedEx is forecasting:

• Flat to low-single-digit-percent revenue growth year over year
• Earnings per diluted share of $15.00 to $17.00 before the MTM retirement plans accounting adjustments and $16.50 to $18.50 after also excluding costs related to business optimization initiatives
• Permanent cost reductions from the DRIVE transformation program of $1.8 billion
• ETR of approximately 25% prior to the MTM retirement plans accounting adjustments
• Capital spending of $5.7 billion, with a priority on investments to improve efficiency, including fleet and facility modernization, network optimization and automation

In the face of analysts’ skepticism over FedEx’s ability to improve low profitability in their Express division, the Carrier expressed confidence that the margin will return once the company restructures operations and demand returns.

FedEx is also placing confidence in their Ground division, citing the strength of partnerships with mega-retailers like Walmart. Furthermore, FedEx is negotiating a renewal of their USPS contract with a goal to improve profitability from this partnership.

Potential Impact on Businesses

Naturally, the repercussions of these earnings reports extend beyond Carriers to impact retailers and businesses reliant on their shipping services. As Carriers explore measures to recoup losses, businesses may face significant challenges as a result.

1. Workforce Reductions: In response to lower earnings, UPS announced its decision to eliminate approximately 12,000 management and administrative positions, resulting in $1 billion in cost savings, as part of a broader restructuring effort aimed at optimizing efficiency and reducing costs—a decision that sent UPS shares plummeting.

At FedEx, cutbacks are focused on the flight crews with up to 400 being targeted for early retirement, along with a reduction of 13% in the pilot’s minimum guarantee of 68 paid hours.

These workforce reductions have the potential to significantly impact delivery speed, accuracy, and efficiency. Experienced workers are being let go as part of the Carriers’ retirement reduction strategy, leaving less experienced and untrained staff to carry the weight, a situation that may increase shipping and delivery errors and decrease speed and, ultimately, customer satisfaction.

2. Amazon, Crowdsourcing and Coyote: As UPS and FedEx battle to regain earnings in 2024, they must contend with the ever-expanding competition, including the giant challenge of Amazon, who expanded significantly into the shipping and delivery sphere in 2023. Crowdsourced delivery is also burgeoning as more and more consumers demand the convenience and speed it offers. To recoup losses to other shippers, UPS indicated that its Coyote truck load brokerage business may be put up for sale. UPS acquired the Chicago-based company for $1.8 billion in 2015, which gives an idea of how much they might be able to recoup through a sale.

Shippers may feel like a pawn in this game, but healthy competition between Carriers offers opportunities. The impact of this competitive environment can be a positive one for businesses that leverage the diversity of shipping options emerging.

3. Service Offerings and Pricing Adjustments: Shippers should be on the lookout for changes by Carriers to offset revenue losses, such as potential adjustments to service offerings and pricing structures or modifications to delivery options, transit times, and surcharge fees and policies. Carriers may also introduce tiered pricing models or miscellaneous random surcharge increases for certain delivery services to align with rising operational expenses.
4. Operational Strategies: To enhance cost-effectiveness, Carriers may implement operational strategies such as route optimization, capacity adjustments, and network rationalization. This could involve consolidating distribution centers, adjusting flight schedules, and optimizing last-mile delivery routes to minimize transportation costs and improve overall efficiency.

Strategies to Control Shipping Costs in 2024:

In the wake of the Carrier rebound, it is imperative for shippers to regroup and adopt proactive measures to mitigate the impact on shipping costs and efficiency. Here are some strategies to consider:

1. Contract Negotiations: With Carriers vying to regain and maintain customers, now is the time to strike. Leverage expert negotiation services to secure favorable terms and pricing structures in Carrier contracts, mitigating the impact of potential rate increases and surcharges.
2. Automated Parcel Invoice Audit Programs: This is one of the most effective and implementable cost-cutting strategies that recoups money from Carriers. Weekly automated parcel invoice audits identify discrepancies, errors, and inefficiencies in shipping invoices to ensure accurate billing and improve efficiency. Most important, your business receives all refunds due from Carriers, with no effort or manpower required on your part.
3. Innovative Cost-Reduction Ideas: Explore innovative yet effective tactics for reducing shipping costs, including packaging optimization, shipment consolidation, and alternative delivery methods, to minimize expenses and improve operational efficiency. Try tech-driven solutions like TruCost Reporting and Rate Shopper to ensure you’re paying the least amount possible for your shipping expense.
4. Shift to Ground Based Delivery: According to a recent Reuters report, businesses are switching to more affordable ground-based delivery. However, ground delivery is also slower, so it’s important to mitigate the consequences in terms of both customers and processes. Provide Tracking Concierge to dramatically improve customer experience.

As businesses pivot and adjust in the aftermath of 2024 Q4 Carrier Earnings Reports, maintaining control of shipping costs and efficiency remains paramount. By staying informed about industry developments, implementing strategic cost-reduction measures, and leveraging specialized services and expertise, shippers and parcel management professionals can effectively rise above challenges and optimize their operations for greater profitability and customer satisfaction in 2024 and beyond.

SOURCES

UPS Q4 Earnings Report, 30 January 2024: https://about.ups.com/us/en/newsroom/press-releases/financials/ups-releases-4q-2023-earnings.html

FedEx Q4 Earnings Report, 30 January 2024: https://investors.fedex.com/news-and-events/investor-news/investor-news-details/2023/FedEx-Delivered-Fourth-Quarter-Fiscal-2023-Revenue-of-21.9-Billion-Diluted-EPS-of-6.05-and-Adjusted-Diluted-EPS-of-4.94/default.aspx

US News & World Report, 30 January 2024: https://www.usnews.com/news/best-states/georgia/articles/2024-01-30/ups-stock-down-before-market-open-as-company-gives-softer-than-expected-full-year-revenue-outlook

MarketWatch, 20 June 2023: https://www.marketwatch.com/story/fedex-says-friction-between-ups-and-its-union-has-opened-a-lot-of-doors-22f69ceb?mod=article_inline

The Motley Fool, 4 February 2024: https://www.fool.com/investing/2024/02/04/ups-stock-buy-sell-or-hold/

The Loadstar, 5 January 2024: https://theloadstar.com/no-happy-new-year-for-fedex-and-ups-staff-as-culls-look-set-to-continue/

Reuters, 30 January 2024: https://www.reuters.com/business/ups-forecasts-2024-revenue-below-expectations-shares-fall-2024-01-30/

Reuters, 30 January 2024: https://www.reuters.com/business/fedex-cuts-full-year-revenue-forecast-2023-12-19/