Shipping grows for companies amid COVID-19
Demand comparable to holiday season
Fedex and UPS have both seen spikes in package volume since the COVID-19 pandemic, with UPS getting an extra lift from its home delivery footprint in Europe.
Volume surged for the shipping rivals in their most recently reported quarters, as both companies experienced demand comparable to holiday shopping season.
Fedex Express and Fedex Ground’s combined average daily package volume was 16.5 million, up 10% from the year-before quarter. UPS delivered an average of 24.4 million packages daily, up 21% from the year-before quarter.
The volume spike is concentrated in
U.S. home deliveries as more people stay home and order online during the COVID-19 pandemic. UPS has long thrived in the home delivery space, aided by being a major Amazon shipper.
Fedex, meanwhile, has historically focused on commercial shipments and ended its major shipping contracts with Amazon. However, the company aggressively ramped up its e-commerce investments in recent years, which executives said allowed it to better handle the volume spike.
Fedex Express hurt by coronavirus in spring
UPS also saw international growth this past quarter. Average daily international volume grew 10% to 3.3 million, and international package revenue increased 5.7% to $3.7 billion.
CEO Carol Tome called the international segment’s results “outstanding” in an earnings call last week. Like Fedex, UPS took advantage of a lack of passenger airplane capacity and tacked on new surcharges.
Fedex Express, meanwhile, saw average daily international volume fall 15% to 2.8 million, and international package revenue fell 13% to $3.4 billion.
Timing plays a factor into the two logistics giants’ results. Fedex’s most recently reported quarter ended in May, while UPS’ ended in June. Morningstar analyst Matthew Young said improved commercial demand in June and UPS’ larger home delivery presence in Europe likely helped its earnings.
Global air cargo demand continued its recovery in June from the initial COVID-19 shock, with demand down 17.6% from last year, according to the International Air Transport Association — an improvement from May's 20.1% decline. Fedex has seen “day-over-day and week-over-week improvements” to commercial volumes since they bottomed in mid-april due to COVID-19 shutdowns, said COO Raj Subramaniam in an earnings call.
Fedex shareholder Trip Miller, managing partner of Memphis-based Gullane Capital Partners, said besides the timing of Fedex and UPS' quarters, the way the companies collect and define their package volumes may also be a factor. Additionally, some Fedex Express volume and revenue may be flowing into Fedex Ground, and vice versa, as the two separate divisions work together more often.
“Not to say we can't learn too much from recent numbers, but over the next six to 12 months we'll get better insight into what's really going on at their individual divisions,” Miller said, adding that he views Fedex's international business as going through “a strong resurgence” despite COVID-19 disruptions.
European e-commerce helps UPS
UPS credited its international results in part to a 95% increase in residential volume internationally, driven by crossborder home deliveries in Europe, said CFO Brian Newman on the earnings call.
“The pandemic has materially accelerated the broader shift to e-commerce sales for large retailers, driving another spike in residential deliveries across the U.S. and Europe,” said Young said in a note after UPS' earnings report, adding that home deliveries in Europe offset “anemic” commercial shipments.
UPS aiding the U.S. government's logistical response to COVID-19, including flying in protective gear, incubators and more overseas, also boosted its business, said Jerry Hempstead, founder of shipping consultancy Hempstead Consulting.
Fedex and UPS were part of FEMA'S Project Airbridge, the public-private partnership designed to quickly deliver protective gear and other urgent supplies from overseas to the U.S. In June, FEMA announced the partnership would end after operating around 249 flights.
Fedex can improve after TNT integration
Fedex's U.S. domestic business has been its strength of late. Internationally, it's grappled with the costly integration of European courier TNT Express and a global economic slowdown happening before COVID-19.
Company earnings “are still scarred by the execution of the TNT acquisition” and a cyberattack to TNT'S systems that hampered their performance early on,
Hempstead said.
Fedex executives elaborated on the company's plans to improve its international results. Part of that is making headway on the TNT integration, which Fedex expects will expand its services in Europe.
Milestones for the TNT integration this fiscal year include “offering an enhanced portfolio of international services” and integrating linehaul and pickup-and-delivery operations, according to a recent Fedex investor presentation.
“Increasing international profitability is a major priority for us and Europe is our biggest opportunity,” Subramaniam said. “…We will leverage the capabilities that TNT adds to our portfolio, which are expected to improve our European revenue and profit profile.”
A fully integrated TNT will provide Fedex a big lift once Europe rebounds economically, taking the company from a smaller player in the region to one of its largest, Miller said.
Fedex is bringing its United States playbook to Europe and boosting its ecommerce capabilities there as it wraps up the TNT integration, Chief Marketing Officer Brie Carere said on the call.
The company is also renegotiating shipping contracts “to better reflect current market conditions” and has added extra short-term capacity to help customers searching for cargo space on intercontinental flights, she said.
That space on passenger flights remains severely contracted. Fedex has benefited from the capacity crunch but not to the extent UPS has, according to
Hempstead.
“Our international business is poised to benefit from the continued contraction of commercial capacity and our best-in-class global network,” Carere said.
Max Garland covers Fedex, logistics and health care for The Commercial Appeal. Reach him at max.garland@commercialappeal.com or 901-529-2651 and on Twitter @Maxgarlandtypes.