Resource Center/Article12/22/2022

What’s in this year’s peak holiday pudding? “Softened Demand”

Parcel and LTL carriers assess impact of “softened demand” from retail markets while building 2023 forecasts.

  • 11/18: The Trade Association for Logistics Professionals (TALP), founded by Spencer Patton to provide a collective negotiation and legal voice for FedEx Ground contractors, dissolved after determining the “committee, as structured, is not the appropriate vehicle to accomplish this goal [to better promote effective dialogue with FedEx Ground] and that better options exist.”
  • The carrier announced less favorable earnings in its latest Q2 FY23 earning call. Notable highlights include:
    • Revenue: $22.8B (⬇3% YOY)
      • Driven by “continued demand weakness, particularly at FedEx Express”
    • Adjusted Operating Profit: $1.21B (⬇28% YOY)
      • FedEx Express Operating Profit: Fell by 64% YOY “due to lower global volumes”
      • FedEx Ground Operating Profit: Increased by 24% YOY “due primarily to a 13% yield increase and cost reduction actions”.
      • FedEx Freight Operating Profit: Increased 32% YOY, “driven by an 18% yield increase”
    • Adjusted Operating Margin: 5.3% (⬇1.8% YOY)
    • Adjusted Net Income: $815M (⬇37% YOY)
    • Adjusted Diluted Earnings Per Share (EPS): $3.18 (⬇34% YOY)
    • Leadership repeatedly made comments that the carrier would pursue cost reduction efforts throughout 2023 to minimize impact of “weaker-than-expected volume” and cited a $3.7 billion cost savings opportunity across its business plan for the fiscal year.
    • Leadership also pointed to the carrier’s previously announced DRIVE program, a comprehensive plan “to improve the company’s long-term profitability and achieve its financial targets… through [which]… the company expects to achieve more than $4 billion in annualized structural cost reductions by fiscal 2025.” Leadership announced that it would dedicate a special update call to DRIVE efforts later in 2023.
  • The carrier says its ready to deliver this holiday season and points to its money-back guarantees as proof of confidence (in contrast to FedEx’s decision to suspend its money-back guarantees for some shipments during the peak holiday season).
  • UPS Healthcare’s Bomi Group acquisition is now complete. Bomi Group, a “multi-national healthcare logistics provider”, brings UPS Healthcare 216 facilities (some temperature-controlled) spanning 14 countries (and 17M sq. ft.), as well as 3,000 additional employees.
    • These facilities are also notably Good Manufacturing Practice (GMP) compliant or already rated current GMP (cGMP). Pharmaceutical handlers undergo strict World Health Organization (WHO) safety regulations to gain GMP certification.
    • Leadership quote: “With the capabilities Bomi Group brings to our network, UPS Healthcare is confident that significant new services and synergies will come in Europe and Latin America from this acquisition. As we move into our transition plan, we’re ready to put those synchronized services into action.”

GRI and Surcharges

  • FedEx Canada
    • FedEx Canada published its 2023 list rates for Express and Ground. New rates are effective January 2, 2023.
  • Lone Star Overnight (LSO)
    • LSO announced that base rates effective January 2, 2023 will be 6.2% higher on average. Rate guides are not available at this time. Read the announcement.
  • OnTrac
    • OnTrac Ground rates will increase 6.9% on average beginning January 1, 2023. Surcharges will increase as well.
  • UPS
    • UPS SurePost will implement new length and cube surcharges effective March 26, 2023 which roughly mimic the length and cube fees that were implemented by the USPS earlier this year. New SurePost surcharges will include:
      • Non-Standard Cube Charge, which is a package measuring greater than 2 cubic feet.
      • Non-Standard Extra Length Charge, which is a package with the longest side exceeding 30 inches.
      • Non-Standard Length Charge, which is a package with the longest side greater than 22 inches and going up to 27 inches.
      • In addition, the “one-dimension” criteria for the Non-Machinable Charge will be altered to apply to packages with one dimension that measures greater than 27 inches and going up to 30 inches.

LTL Carrier News

  • Large LTL carriers began noting a declining trend in tonnage starting in September – a trend that continued into and escalated in November. Early into the month, Darren Hawkins, Yellow CEO, said the retail sector represented the greatest shrinkage in volume, but that industrial markets remained firm. Meanwhile, Saia saw its volume November shrinkage nearly double – ⬇3% YOY in October and ⬇7.7% in November. Volume shifts like this have spurred analysts like Ken Hoexter from Bank of America to lower carrier stock ratings. “Saia’s midquarter update showed LTL tonnage and shipment trends deteriorating faster in November and larger than our BofA monthly targets,” Hoexter said.
  • In response to shrinking retail volumes, some LTL carriers are cutting back on expenses.
    • FedEx Freight announced “voluntary” layoffs beginning in December for an undetermined number of employees.
    • Yellow announced it will sell 28 of its 290 terminals, though the carrier has branded the act as part of its efficiency and growth plan to become a “super regional carrier”.
    • Saia has commented that it will pause growth efforts, notable after growing its revenue last year by 25.6% to $2.3B and earning its place amongst the 10 largest LTL carriers in the U.S.
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