July 24, 2013

Customer shift hurts UPS

A trend away from premium services forces a 4 percent fall in profits.

The Associated Press

DALLAS — UPS said Tuesday that second-quarter profit fell 4 percent as customers shifted from premium toward lower-priced shipping services.

The company called the results disappointing and said it was adapting to the changing market.

Atlanta-based United Parcel Service Co. and rival FedEx Corp. are losing some high-priced business as international shippers switch from premium next-day air deliveries to two-day or three-day services. UPS Chairman and CEO Scott Davis told analysts on a conference call that the shift could be temporary due to a lack of new technology products from Asia.

"On the other hand, some of the trade-down is likely permanent," Davis added, because of improved manufacturing supply chains and more global trade among nearby nations.

For pallet-size international shipments, cargo carriers such as UPS are facing more competition from passenger airlines, which are loading more freight in the bellies of their new, wide-body jets. The airlines often charge lower freight rates to fill up the cargo holds.

UPS is looking to re-ignite growth by targeting developing countries and growing industries such as health care.

It is expanding ship and other inexpensive delivery options, and it is offering new services to consumers such as letting them change the date or address for deliveries for an extra fee. The company has also been trimming costs by retiring older planes and reducing missed deliveries.

 

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