UPS Profit Slips at Supply Chain and Freight Segment
Softer demand for industrial shipping offsets steady pricing in UPS Freight trucking market
Several less-than-truckload carriers have reported ”rational” freight rates even as pricing in other industrial transportation sectors has weakened. PHOTO: BLOOMBERG NEWS
United Parcel Service Inc. reported lower than expected earnings in its Supply Chain and Freight segment Friday. Revenue increased by more than 13% to $2.5 billion in part from the acquisition of Coyote Logistics, but profit dropped more than 7% from $207 million to $192 million in what executives said is a soft freight shipping market.
Much of UPS’s freight business comes from less-than-truckload, or LTL, shipping, a market that has been weak for over a year, according to U.S. chiefMyron Gray. Although LTL revenue per hundredweight, a measure of pricing strength, increased almost 3% from last year due to discipline in setting freight rates, tonnage fell by 10%.
“The LTL market for the last 16 consecutive months has experienced softness,” Mr. Gray said on an earnings call with analysts. “Our customer base is telling us that they have high inventory levels,” reducing the need for restocking.
The company said faltering demand in both international airfreight and the U.S. trucking market will continue to hit its Supply Chain and Freight segment but that revenue for the unit will increase 10%.
ALSO IN LOGISTICS
- DP World Strikes Deal to Operate Canada East Coast Port July 28, 2016
- Trucker Roadrunner Shares Tumble on Steep Profit Decline July 28, 2016
- Transport and Logistics M&A Cooling From Torrid 2015 Pace July 28, 2016
- Norfolk Southern Says Volume Slump May Reverse by Fourth Quarter July 27, 2016
UPS is seeing strong consumer demand in e-commerce but business-to-business shipments have been weak, a trend evident in the U.S. gross domestic product report released Friday. GDP grew at a weak 1.2% annual pace as a pullback in inventories and slack business investment offset consumer spending growth.
Other LTL companies reported similar sluggish demand even as operators said they are maintaining pricing while providers in other freight sectors are seeing rates decline.
Old Dominion Freight Line Inc. said its revenue per hundredweight grew 2.7% year-over-year in the second quarter despite declining tonnage and revenue. And YRC Worldwide Inc. said its similar measure was up 1.3% in the quarter.
“The pricing environment remains much more rational in the LTL space than other modes of transportation,” James Welch, chief executive officer of YRC, told investment analysts on a conference call Thursday.
The decline in freight profitability at UPS was offset by gains in the logistics sector, which the company attributed primarily to its acquisition of Coyote Logistics in the third quarter last year. The technology-focused freight brokerage helps match excess capacity with shippers, and that asset-light model “has provided some great flexibility in the up-and-down cycles,” said Chief Commercial Officer Alan Gershenhorn.
