FedEx, UPS Gear Up For The Most Important Quarter Of The Year

FedEx (NYSE:FDX) and UPS (NYSE:UPS) are expecting this holiday season to be a big one, as both companies expect increased delivery rates this quarter. UPS is expecting its deliveries to rise by 10% over the same quarter last year, including about 630 million packages between Thanksgiving and New Year’s Eve. The busiest day is expected to be December 22, and the company is expecting to deliver about 36 million packages, which is double the number of packages delivered on a regular day. ^[1] On the other hand, FedEx is expecting delivery rates to increase by almost 12.4% from a year ago. This translates to a record 317 million packages, driven by the continued increases in popularity of e-commerce. ^[2]

The holiday season is the most profitable time for courier companies, but also the most challenging due to the sheer volume of packages. Accordingly, these companies put in a lot planning to ensure smooth operations during this quarter, because if things go wrong it can have a significantly negative impact.

The National Retail Federation expects retail sales to rise by about 3.7% this holiday season, and online sales to increase by about 6% to 8%.

UPS

UPS has highlighted a few areas of focus for the upcoming quarter:

1. After the debacle witnessed in Q4 2013, where UPS failed to cope with large volumes, the company has worked hard to increase its network capacity. As a result, customers will now be able to take advantage of UPS’s increased adoption of omni-channel distribution and extended access point solutions.
2. UPS plans to increase its efficiency, sort capacity and lower costs this time around by investing in better technology. The company has improved its automation processes across various hubs in Europe. Apart from this, the company will increase the number of trucks equipped with ORION dispatch technology. About 70% of drivers in the U.S. will be equipped with the technology this year, compared to 45% a year ago.
3. The company has also decided to make certain enhancements to its pricing policy in an attempt to optimize packaging efficiency by charging a higher surcharge for larger packages. If things go according to plan, this will ensure that customers are more careful to not use large boxes for small items, which in turn will enable the company to move larger volumes per unit.

In addition, UPS is hiring about 95,000 additional workers to cope with the high volumes.

See Our Complete Analysis of UPS

FedEx

FedEx expects to move an all-time high of 317 million packages globally between Black Friday and New Year’s Eve. Because of this, the company has invested close to $1.6 billion this year in capacity and automation projects at FedEx Ground. ^[3] This quarter, FedEx Ground is carrying out sorting operations seven days a week. In addition, the company is planning to hire 55,000 additional workers for the peak season and planning to increase capacity and efficiency at its FedEx Express hubs for the season.

The company expects Cyber Monday and the first two Mondays of December to be the busiest of the season. FedEx expects to handle double the volume than an average day on these days.

See our complete analysis of FedEx here

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More Trefis Research

1. UPS Q3 Earnings Call Transcript, www.seekingalpha.com [↩]
2. UPS, FedEx Expect Big Holiday Season, www.aircargoworld.com [↩]
3. FedEx Readies For A Crush Of Holiday-Season Shipments, www.washingtonpost.com [↩]