Consultant Insight: UPS and FedEx bullish on International

UPS announced another impressive earnings report this week as its International division delivered record operating profit, up 44.8% to $966 billion during the third quarter. Average daily volumes grew 12.1%, with 16.5% export volume growth globally and led by continued strong outbound demand from Asia. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] In its latest earnings report for the period ending Aug. 30, FedEx also noted that demand was strongest on the trans-Pacific lane with a lower percentage of PPE shipments from Asia month-over-month. Total express international export volumes increased 19.2% year-over-year. Indeed, international demand has remained strong this year for both companies. UPS was instrumental in importing and assisting in distributing PPE items into the United States and as a result, UPS implemented COVID-19 related surcharges to manage international demand as it prioritized PPE. However, the surcharges remain in effect as demand for PPE lessens and the need for inventory replenishment increases, particularly from Asia. For the third quarter, UPS reported Asia outbound average daily volumes up 37.6% year over year. Because of the high demand, UPS added an additional 268 flights during the quarter. Like UPS, FedEx has been instrumental in importing and distributing PPE items. It also implemented COVID-19 related surcharges, which are still in effect, to manage international demand. Indeed, FedEx has recently increased its surcharge for U.S. inbound shipments from Europe and the Middle East, India Sub-Continent and Africa regions because of high volumes. As noted in FedEx’s earnings report, Europe’s demand is being driven by e-commerce growth. The express operators reported strong European cross-border B2C, with export average daily volume up 15.5% for FedEx. UPS expects to continue its year-over-year profit growth rate as it anticipates a growth rate in the “high teens” for the fourth quarter. FedEx, meanwhile, is renegotiating base contracts to better reflect current market conditions and to establish longer-term commitments. Global air cargo capacity remains tight despite slow improvements. According to Seabury Consulting, global capacity for the period of Sept. 29 through Oct. 12 is down 20% YoY, an improvement from Aug. 1 through Aug. 15 when global capacity was down 25% YoY. Trans-Pacific capacity has seen the most improvement while the trans-Atlantic lane continues to be tight. This lane, in particular, could prove beneficial to both integrators in terms of pricing and market share gain. Of course, the timing of a COVID-19 vaccine will place further constraints on the international air cargo market. International Air Transport Association (IATA) has warned of potentially severe capacity constraints in transporting vaccines by air and urges governments to begin planning with industry stakeholders to ensure full preparedness when vaccines for COVID-19 are approved and available for distribution. However, according to a Wall Street Journal article , cargo executives said they expect it will take two years for a vaccine to reach all of the world’s population, with particular challenges in some emerging markets where infrastructure is limited.

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