The major US integrators this week reported challenging international market conditions,characterised by ‘down-trading’ from priority to deferred products and lower economic and growth
expectations for the coming months, although FedEx Express also announced price increases for USdomestic and international customers and UPS and DHL Express both expressed optimism about theircurrent activities and opportunities.Following FedEx’s downbeat quarterly report on Tuesday, which led to a 3 per cent decline inits share price, the head of UPS’s international division, Dan Brutto told a Bloomberg briefingyesterday that UPS had also seen down-trading, linked to short-term economic headwinds and adecline in manufacturing orders in Asia. Although he stressed the company remains “very bullish inthe long term” and described the current challenges as “just a cycle”, both UPS and FedEx haverecently said they are basing their expectations for the months ahead on lower growth predictionsthan those forecast by some economists and analysts.
A UPS spokeswoman told CEP-Research that the company did not report mid-quarter data, butsaid that in late July, UPS specifically talked about projected US GDP growth being only about 1per cent and that it saw the general global economy decelerating in the second half of 2012. Sheadded: “We expected some B2B contraction, though we continue to see strength in B2C, as evidencedthrough the growth of ‘UPS My Choice’ registrations – over 1.6 million since launch last October –and growing B2C activity in Europe.”
FedEx this week revealed it is working on plans to reorganise its international expressnetwork, in response to increasing demand for ‘international economy’ express services as opposedto ‘international priority’ services, and that the company was unlikely to add any incrementalinternational freighter capacity in the coming months. UPS has been actively cutting its airexpress capacity out of Asia, after announcing in July a 10 per cent reduction in itsown-controlled ex-Asia air services. A UPS spokeswoman confirmed there was a capacity-reductionprogramme for Asian intercontinental services, but declined to give any updates or specifics.
In terms of price increases, it seems that UPS may be less bullish about potential rateincreases than rival FedEx, which on Tuesday announced a 3.9 per cent net increase in expressparcel prices for US customers from January, for import, export and domestic services. This isbased on a 5.9 per cent rate increase offset by a 2 per cent reduction in the fuel surchargestarting level.
The UPS spokeswoman told CEP-Research: “It’s premature for any discussion of our rate plansfor 2013.” However, she said pricing had “remained rational” in the marketplace. “Our rates arealways going to reflect changing business conditions that include not only costs, but demand forour services, the competitive landscape and investments in new innovations and technology,” sheadded.
Nevertheless, she said UPS customers recognised that the value added by using its servicesgoes beyond package price. “We’ve worked hard to control costs and still expand our service andtechnology portfolio to offer that value and choice,” she added. “And our technologies help improveour customers’ productivity and reduce their own costs.”
She emphasised that there were still lots of opportunities to explore, and that UPS wascontinuing to invest in promising new areas. “We’ll be introducing our UPS collection points withKiala technology in the UK this fall and to Germany next year beyond its current markets inBelgium, France, Luxemburg, the Netherlands and Spain,” she said.
“Through the UPS Strategic Enterprise Fund, we’ve invested in Shutl, a 2010 British start-upthat connects retailers to local same-day courier companies within 90 minutes or a premium one-hourwindow, so we’ll have a board advisory role to review that technology and the options it can affordour customers.” She added: “For us, the global trends are to offer both consumers and merchants thechoices to satisfy multi-channel retailing and consumer mobility. You’ve still got productsourcing, manufacturing and assembly going on around the globe.”
While UPS’s ‘bride-to-be’ in Europe, TNT Express, has also been cutting its own-controlledair freight capacity from Asia, DHL Express has remained more bullish than rivals UPS and FedEx, inpart because of its lower exposure to the flat US market. Although DHL Express said its decision toreplace two Boeing 747-400 freighters on Asia routes this quarter with two bigger new-generationBoeing 747-8 freighters was “driven more by the fact that the aircraft are more efficient, notdriven by a need to add significant capacity”, it has maintained and in some cases expanded its airexpress capacity levels this year.
A DHL Express spokesman told CEP-Research that the company was as cautious as anyone elseabout what lies ahead, although it had continued to see growth this year in its core expressmarkets. “Our focus is on international time-definite delivery, and our network is built around thedemand for this product,” he said. “We have continued to see strong growth in 2012 in this segment,and consequently have no plans to reorganise capacity.”
He said DHL Express had made significant investments in 2012, particularly in Asia Pacific. “In July, we officiated the launch of the US$175m North Asia Hub and announced plans to furtherinvest US$132 million (€100 million) to add eight dedicated aircraft to service high-demand routesbetween Shanghai and North Asia, Europe and the US, by 2014,” he pointed out. “These have supportedthe growth we have been seeing, due in large part to our strong positioning in growth markets.”
Nevertheless, the current uncertain market conditions means DHL Express is unlikely to beinvesting heavily in major new hub projects over the next couple of years, observers believe.
The DHL spokesman said the company constantly reviewed its capacity requirements within thenetwork “to ensure we can provide the best service for customers”. However, the company believes itis unlikely that it will need to put on significant extra own-controlled capacity during thiswinter peak season. “We feel we are well placed to accommodate any peak in volumes in Q4 usingexisting capacity and commercial options,” he said.
On pricing, he said the company was not able to make any statement on this at this moment intime.
