Consultant’s Insight: Some express carriers begin to see B2B green shoots

Improving signs in B2B demand are leading to a more upbeat outlook for some express providers. DHL and UPS reported positive signs during their second-quarter earnings calls. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] However, FedEx Chief Executive Raj Subramaniam told analysts during his company’s earnings call last week, “Weakness in the industrial economy pressured our B2B volumes, particularly in the U.S.” Demand for air cargo has shifted to deferred services from premium services over the past year or so as industrial demand waned and Asian e-commerce providers snapped up capacity at low cost. E-commerce represents at least 20% of total air cargo, according to some estimates. E-commerce providers such as Temu and Shein are adept at logistics strategy and often command lower rates because of their volume sizes. However, most of this volume is small, lightweight parcels destined for residential locations, an unprofitable service for many express providers. Economy service preferred over premium “We’ve been very strategic in making sure that the relationship is mutually beneficial,” FedEx Chief Customer Officer Brie Carere told analysts last week when asked about the large Chinese e-commerce providers. “They are accretive, but we have really focused on the parts of their business where they need speed and/or where we have available capacity coming into the United States.” Indeed, in its recent earnings announcement for the quarter ending Aug. 31, FedEx Express reported a 5.5% year-over-year decline in average daily volumes (ADV) for its premium service (International Priority) and a 34.5% YoY increase in ADV in its lower-cost and slower-transit-time service (International Economy). Revenue per piece more than doubled YoY for International Economy while increasing 26% YoY for its International Priority service. Revenue per piece gains were primarily propped up by several fuel surcharge increases throughout the year and a higher 2024 general rate increase (GRI). As a result, FedEx Express reported a decline in operating income. B2B green shoots for DHL and UPS However, B2B green shoots are emerging in the express market for DHL and UPS. DHL’s parent company, Deutsche Post , reported in August that express B2B volumes moved “just back into growth territory” during Q2. “It’s not a broad-based acceleration yet, but some signals of the expected improvement in market conditions seem to be emerging,” Deutsche Post Chief Financial Officer Melanie Kreis told analysts in August. Still, it wasn’t enough to offset declines in revenue and volumes for Deutsche Post’s time-definite international service. Q2 revenue was down 1.4% YoY, an improvement from Q1’s 2.9% YoY decline, but volumes declined 3.1% YoY compared with Q1’s 2.2% YoY decline. Meanwhile, UPS noted in its Q2 earnings call in July that, for the first time in 10 quarters, 11 of its top 20 export countries reported YoY ADV growth. Like FedEx, UPS benefited from higher surcharges and a higher 2024 GRI. However, UPS’ export ADV fell 1.5% YoY in Q2, while revenue per piece increased 0.6% YoY. Will it last? Of the three leading express providers, FedEx is the only one to revise its fiscal 2025 outlook. It now expects a low YoY single-digit percentage revenue growth rate, compared to the prior forecast of a low-to-mid single-digit percentage increase. But on the same day that FedEx reported, the Federal Reserve cut interest rates for the first time in four years. Lower interest rates should help stimulate manufacturing demand further, but the outcome of the U.S. presidential election in November will also have a bearing on how manufacturing demand will move. So, while there were positive B2B cargo signs in DHL and UPS Q2 earnings, they may not be sustainable in Q4 and beyond.

Consultant’s Insight: Some express carriers begin to see B2B green shoots

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