Consultant’s Insight: UPS’ international, freight forwarding divisions feel market impact

UPS reported third-quarter revenue , profit and volume declines across the organization last week. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] “We expected conditions in the third quarter to be challenging, and they were,” UPS Chief Executive Carol Tome told analysts Thursday. “The global macroenvironment remained weak, with some countries in recession, which pressured international and freight forwarding volume.” Indeed, UPS’ international division reported revenue declines of 11.1% year over year, primarily driven by a 6.6% YoY decrease in average daily volume and continued softness on Asia and Europe trade lanes. The supply chain solutions group reported revenue decreasing 21.4% YoY, due primarily to market rate and volume declines in forwarding. UPS Chief Financial Officer Brian Newman attributed the lower performance in the company’s international and supply chain divisions to declines in real exports and industrial production due to falling demand. In international airfreight, softer global demand and lower volume resulted in a decline in the freight forwarding division’s revenue and operating profit, while ocean freight recorded volume growth, driven by the retail sector, but excess market capacity pressured revenue and operating profit. In the quarter, UPS’ international total average daily volume was down 6.6% YoY. Nearly three-quarters of the decline came from lower domestic average daily volume, down 9.1% YoY, driven primarily by European declines, according to Newman. On the export side, average daily volume declined 4.1% YoY. Meanwhile, Asia’s export average daily volume was down 8% YoY, and export volume on the China-to-United States lane was down 10.3% YoY. Newman noted that the China-to-U.S. lane “is our most profitable lane.” In response, headcount in operations was reduced by 2,300 positions and block hours were reduced by 13.9% from Q2 to match changes in geographic demand. Logistics a bright spot Meanwhile, UPS’ logistics division recorded revenue and operating profit growth for the third quarter, according to Newman. This growth was likely due to the company’s objective of becoming the world’s No. 1 complex health care logistics provider. Year-to-date, UPS has opened seven dedicated health care facilities in Europe and the United States. Since 2020, UPS has more than doubled its health care distribution space globally. “These efforts and more are keeping us on track to reach our $10 billion health care revenue target this year and we’re just getting started,” Tome told analysts. Tome also recognized the company’s recent health care industry acquisitions: MNX Global Logistics and Bomi Group . “By combining MNX with UPS Express Critical and our global integrated network, we will enhance the speed and reliability of our health care portfolio,” Tome said. “With MNX, UPS will be able to reach new health care markets, like in Asia, and new customers, like the radiopharmaceutical sector.” The acquisition of Bomi strengthened UPS’ health care footprint in Europe and Latin America. Outlook UPS lowered its 2023 full-year guidance and provided a range to reflect the uncertainty in the market. It now expects consolidated revenue to be between $91.3 billion and $92.3 billion and consolidated operating margin between 10.8% and 11.3%. No comments on 2024 were provided during UPS’ earnings call, but its international division and freight forwarding group will likely struggle to gain volumes in the first half of 2024. International organizations such as the International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) have recently cut their 2024 outlooks, which does not bode well for the global freight market. The IMF expects global growth to slow to 3% this year and 2.9% in 2024. Stronger growth is expected in the U.S. and large emerging markets, and slower growth is anticipated for China and the eurozone. The OECD released similar expectations, with anticipated 3% growth in 2023 and 2.7% growth in 2024. “A key priority is to revive global trade, an important source of long-term prosperity for advanced and emerging-market economies,” according to OECD’s revision in September. “Concerns about economic security should not prevent advantage being taken of opportunities to lower trade barriers.”

Consultant’s Insight: UPS’ international, freight forwarding divisions feel market impact

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