Resource Center/Article • 02/18/2021
Carriers and Shippers Navigate Longterm Impact of B2C Deliveries
Carrier margin and surcharge concerns remain as the Parcel AND LTL industry navigate costly and complex residential deliveries.
Key Highlights
FedEx News
- FedEx Ground President and CEO, Henry J. Maier, will retire effective July 31, 2021.
- FedEx Express anticipated to layoff up to 6,300 European employees by 2023.
- FedEx files trademark for new global tagline, “FedEx. Where Now Meets Next.”
UPS News
- UPS sees positive 4Q 2020 earnings, but margin concerns remain as costly B2C deliveries outpace B2B deliveries.
GRI & Surcharges
- Many carriers continue to post updates to pandemic-driven surcharge terms.
LTL Carrier News
- Reminder, UPS sold UPS Freight to TFI International Inc. for a sum of $800 million.
- FedEx Freight President and CEO, John A. Smith, will succeed retiring FedEx Ground President and CEO, effective June 1, 2021.
- Saia and Old Domion Freight Lines (ODFL) have their sights set on network expansion, rate increases also on the rise.
Fuel Trends
- The February Short-Term Energy Outlook remains subject to heightened levels of uncertainty due to COVID-19.
Parcel Carrier News
FedEx enters 2021 with leadership changes, high number of anticipated European layoffs followed by record savings, and sights set on meeting Next, Now.
- The carrier announced FedEx Ground President and CEO, Henry J. Maier, will retire effective July 31, 2021, and be succeeded by FedEx Freight President and CEO, John A. Smith. Since assuming the role in 2013, Maier is remembered positively as playing a pivotal role in FedEx Ground’s ability to understand and efficiently serve growing commercial and E-Commerce markets. Smith will assume the elect role March 1, 2021, until he assumes the full role June 1, 2021. Maier will assume an advisory role through July 2021 to provide guidance and ensure a smooth transition. The carrier will also elevate an existing team member to replace Smith, naming FedEx Freight Senior VP of Operations, Lance Moll, as Smith’s successor.
- FedEx Express anticipated to layoff up to 6,300 European employees by 2023. The carrier acquired TNT Express back in 2016, a strategic move to expand services/coverage throughout Europe. With network integration between FedEx Express and TNT Express near finalization, the carrier believes up to 6,300 employee roles (both operational and back-office roles) will become duplicated and obsolete. Following the layoffs and anticipated severance costs, FedEx estimates this transition will yield $275-350 million in annual savings starting in 2024. Severance costs are predicted to cost the carrier between $300-575 million through fiscal 2023.
- FedEx files trademark for new global tagline, “FedEx. Where Now Meets Next.” The new tagline is designed to be a nod to both the carrier’s future focused attitude and the determination and hard work of its employees throughout the COVID-19 pandemic. FedEx stated, “FedEx is committed to future-focused change, which is why we are evolving our brand to a fresh and modern look and feel. ‘FedEx. Where now meets next.’ is our new global tagline. It represents how we are channeling our innovative spirit to build the network for what’s next. It’s not just a phrase, it’s a representation of our immense pride in our team members and how they are moving the world forward.”
After continued quarterly 2020 earnings, UPS sees 4Q earnings set the ink on a substantially positive financial year for the carrier.
- UPS announces positive 4Q 2020 earnings, giving insight into a full year of 2020 network activity and decisions.
- Leadership Quote: “Our financial performance in the fourth quarter exceeded our expectations, and I thank all UPSers for their extraordinary efforts to deliver industry-leading service through the holidays.” said Carol Tomé, UPS chief executive officer. “I’d also like to thank our customers who worked with us during this challenging year.”
- Notable Highlights:
- Consolidated Revenue: $24.9B (+21.0% YOY)
- Operating Profit: $2.2B (+1.6% YOY)
- Net Income: $2.3B (+26.4% YOY)
- Adjusted Diluted EPS: $2.66 (+26.1% YOY)
- US Domestic
- Avg Daily Volume: +8.9% YOY
- Operating Margin: 7.9%; Adjusted Operating Margin: 8.8%
- International
- Avg Daily Volume +21.9% YOY
- Operating Margin: 24.1%; Adjusted Operating Margin: 24.3%
- Supply Chain and Freight
- Revenue: +29.0% YOY (driven by strong freight forwarding demand out of Asia & UPS Healthcare)
- Operating Margin: -5.2%; Adjusted Operating Margin: 7.6%
- Full-Year 2020 Consolidated Results
- Revenue increased 14.2% to $84.6 billion.
- Operating profit was $7.8 billion; adjusted operating profit was $8.7 billion, up 7.0%.
- Diluted EPS totaled $1.64; adjusted diluted EPS was $8.23.
- Capital expenditures were $5.4 billion, or on an adjusted basis $5.6 billion.
- Annual free cash flow was $5.1 billion, including $3.1 billion in pension contributions.
- Dividends paid were $3.6 billion, a per-share increase of 5.2% over the prior year.
- Industry analysts observe UPS’s greatest opportunity – and challenge – is successfully wrangling B2C volume into a collective profitable margin. Despite some record 2020 revenue numbers, it’s no secret that carrier margins are top of mind for many transportation industry analysts watching costly and complex B2C volume grow, while more profitable and navigable B2B volume shrinks. However, some speculate that UPS is in a position to grow its margins – here’s why:
- Carol Tomé, and her “Better, Not Bigger” mantra, has proven UPS already has a margin-driven leader. In fact, UPS has committed to a $500 million reduction in non-operating expenses this year.
- In Q4 2020, UPS saw its U.S. Domestic revenue per piece increase by 7.8%, just one of many indicators that the carrier’s revenue growth is outperforming volume growth – aka UPS is focused on profitable shipments, opposed to accepting any and all shipments available.
- Analysts say that a carrier’s adjusted operating profit margin diminishes from 3Q to 4Q; however, again UPS saw the reverse in 4Q (moving from 8.6% in 3Q to 8.8% in 4Q). Another indicator that UPS is not just focused on improving its margins, but succeeding in doing so.
- Analysts also anticipate a rise in B2B volume this year, along with continued E-Commerce growth. If UPS can maintain its current path, success may just be around the corner.
GRI & Surcharges
- FedEx
- On 1/15/21 FedEx announced a renewal of the Peak Residential Delivery charge that will be effective on 2/15/21. The announcement:
- For customers who ship more than 30,000 weekly average packages (total for FedEx Express and FedEx Ground U.S. domestic residential packages and FedEx SmartPost® packages) from Jan. 4, 2021–Jan. 31, 2021 (the “Shipping History Period”), the Peak — Residential Delivery Charge will apply effective Feb. 15, 2021 until further notice. The charge amount of $0.30 per package will apply to FedEx Express and FedEx Ground U.S. domestic residential packages (excluding FedEx SmartPost® and FedEx One Rate® packages). FedEx SmartPost packages will be subject to the previously announced Peak Surcharge effective Jan. 18, 2021 until further notice.
- UPS
- On 2/5/21 UPS announced that “effective February 14, 2021 until further notice, the amount of the Peak Surcharges applied to certain international shipments originating from Asia, including China Mainland and Hong Kong SAR, will decrease. All other previously announced Peak Surcharges will remain unchanged.”
- UPS Freight
- On 2/8/21 UPS Freight announced their general rate increase. The announcement reads as follows: “Effective February 22, 2021, general rates will increase by 5.4 percent. This rate adjustment applies to non-contractual less-than-truckload (LTL) shipments rated on the current UPS Freight® 525, 560, 570 and 580 tariffs. Rates based on the current UPS Freight® 571 tariff for Mexico will not change. The impact of this general rate increase may vary by specific lane or shipment characteristics such as weight or class. Customers will be able to view and download the new rates at www.upsfreight.com beginning February 22, 2021.”
- UPS Canada
- On 2/5/21 UPS Canada announced that “effective February 14, 2021 until further notice, the previously announced Peak Surcharge for shipments from China Mainland, Hong Kong SAR, and Australia, New Zealand, and other Asia Pacific countries to Canada will decrease.”
- OnTrac
- On 1/7/21 OnTrac announced an extension of certain peak surcharges, including Large Package, Additional Handling, and DirectPost. The extension became effective on 1/17/21 (1/24/17 for DirectPost) and lasts until further notice.
- Purolator
- On 1/13/21 Purolator announced an extension of peak surcharges that took effect on 1/17/21, including Peak Additional Handling, Peak Oversize, Peak Residential Heavyweight, Peak Large Package, Peak Over Maximum Limit, and Peak Residential Area.
- FedEx Canada
- On 1/15/21 FedEx Canada announced that, effective 1/18/21, certain peak surcharges would continue until further notice. These include Peak Oversize, Peak Additional Handling, and Peak Residential Delivery. For Express, these peak charges apply to intra-Canada packages. For Ground, the Peak Oversize and Additional Handling apply to both intra-Canada and international packages, while the Peak Residential Delivery charge applies only to intra-Canada packages.
LTL Carrier News
- Last month, UPS announced it had sold UPS Freight to TFI International Inc. for a sum of $800 million. Citing the acquisition as a “Better, Not Bigger” partnership opportunity, the carrier’s original UPS Freight network will continue to operate independently within TFI’s own network under the title, TForce Freight. What does this mean for UPS Freight customers? TFI has stated it will “aggressively improve margins” by means of contract negotiation or ending partnership with unprofitable accounts.
- FedEx Freight President and CEO, John A. Smith, will succeed FedEx Ground’s current President and CEO, Henry J. Maier, effective June 1, 2021. The carrier has a four month transition period planned to mitigate potential disruptions and ensure success. The carrier will also elevate within its company to replace Smith, naming FedEx Freight Senior VP of Operations, Lance Moll, as Smith’s successor.
- Saia and Old Domion Freight Lines (ODFL) have their sights set on network expansion, rate increases also on the rise. As previously reported, the LTL industry is primed for carrier expansion and rate increases – Saia and ODFL offer an early look at how LTL carriers plan to navigate 2021. Saia has announced plans to open a new terminal during Q1 2021, with high expectations to add an additional four-six terminals this year alone. Similarly, ODFL anticipates opening three new terminals by Q2 2021 at the latest, in addition to the nine facilities added in 2020. Such growth opportunities are typically indicators of margin-improvement-focused strategies, and both LTL carriers have announced record Q4 2019 operating ratios.
Shipping Industry Trends
- Fuel Trends: The February Short-Term Energy Outlook remains subject to heightened levels of uncertainty due to COVID-19. Reduced economic activity related to the COVID-19 pandemic will continue cause changes in energy demand and supply.
- Current Price (⬆︎): January $55/b up 10% from December. Higher Brent prices driven by Saudi Arabia’s announced production cuts anticipated in February and March of 2021 comprising 1 million barrels per day of crude oil.
- Supply (⬇): January 11M b/d Domestic Production. EIA expects production will continue to decline slightly in the coming months, reaching 10.9 million b/d in June. Although oil-directed drilling has increased in the United States in recent months, the number of active drilling rigs remains lower than year-ago levels.
- Demand (⬆︎): January 93.9M b/d Globally. EIA forecasts that global consumption of petroleum and liquid fuels will average 97.7 million b/d for all of 2021, which is up by 5.4 million b/d from 2020. EIA forecasts that consumption of petroleum and liquid fuel will increase by 3.5 million b/d in 2022 to average 101.2 million b/d.
- Price Forecast (⬇): 1st Quarter $56/b Average. EIA expects lower oil prices later in 2021 due to rising oil supplies that will slow the pace of oil inventory declines. Additionally, high global oil inventory levels and excess production capacity will reduce upward price mobility.
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