UPS Pushes Peak Holiday Fee -- WSJ
July 28 2017 - 2:02AM
Dow Jones News
By Paul Ziobro
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 28, 2017).
United Parcel Service Inc. expects most retailers to agree to
higher shipping prices during the weeks leading up to Christmas,
which it says are necessary because of the glut of online
orders.
UPS last month revealed the extra peak-season fee, which will
affect packages shipped in the two weeks around Thanksgiving and in
the week before Christmas. Discussions with retailers about the
charges and their holiday-season forecasts are continuing, but UPS
said it expects most shippers will have to pay them.
UPS is encouraging retailers to avoid shipping during those
peak-season weeks by holding promotions earlier in November,
offering incentives to shoppers to accept later deliveries or other
tactics.
"If you can work with us to smooth out the flow, then it reduces
your costs as well," Chief Executive David Abney said in an
interview Thursday. In the week leading up to Christmas, where the
surcharge is between 27 cents and 97 cents per package based on the
service used, shippers may be able to delay orders that aren't
gifts. "Not everything is a Christmas present," he said.
Shipping consultants say retailers may have some wiggle room to
negotiate other elements of their contracts. UPS still needs prices
to rise to cover the costs of delivering packages during a period
when daily volumes surge by nearly 60% to 30 million.
UPS is already getting paid more for the extra packages it
delivers. In the second quarter, its revenue per unit shipped rose
1.7%, including 3% in the U.S. package business. That pushed U.S.
package revenue up 8.1% to $9.75 billion. Gross margins rose to
14.3%, the highest level in nearly two years for the division.
Investors have been looking for evidence that UPS and rival
FedEx Corp. can offset the higher costs of e-commerce deliveries by
raising prices and operating more efficiently. The shift to online
shopping and the closing of thousands of brick-and-mortar stores
has put stress on delivery networks, as deliveries to homes are
more costly than bulk deliveries to stores. In the second quarter,
UPS total operating expenses rose 7.5%.
UPS posted higher sales in its international division and its
domestic freight business. Overseas, UPS says it is picking up some
business from FedEx, whose European arm TNT was hit by a
cyberattack this summer. FedEx has warned that the attack will have
a material effect on its results this year.
"We obviously don't wish cyberattacks on any company," Mr. Abney
said, adding that UPS is regularly updating its defenses to, in
part, prevent service disruptions.
Overall for the period, UPS revenue rose 7.6% from the
year-earlier quarter to $15.75 billion. Profit rose 9% to $1.38
billion.
On a per-share basis, the company said it earned $1.58, up from
$1.43. The latest quarter included about 10 cents of benefits from
new fuel surcharge formula and other items. Analysts polled by
Thomson Reuters had expected $1.47 a share.
UPS said that it expects currency headwinds and costs linked to
strategic initiatives to weigh on its results in the second half.
Third-quarter earnings are expected to be "relatively flat"
compared with last year's, and UPS reaffirmed its annual guidance
for adjusted earnings of between $5.80 and $6.10 per share.
In morning trading, shares fell 2.9% to $109.08.
Ezequiel Minaya contributed to this article
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
July 28, 2017 02:47 ET (06:47 GMT)
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