The logistics industry is seeing moderate demand and slower growth due to a decade of rising fuel costs. Industry players have resorted to higher pricing for specific products to offset the higher operational expenditures. Higher prices have forced customers to shift their logistical requirements from faster and premium delivery packages to cheaper modes of delivery, and this has hurt the results of many logistics players including United Parcel Service (NYSE:UPS).
For the recently concluded second quarter, UPS’ total revenues grew at a meager 1.2% to $13.5 billion helped by the U.S. domestic package segment. Net income per share stood at $1.13 vs. $1.15 in the previous year quarter. For the full year, UPS expects net income of $4.65 to $4.85 per share from prior expectations of $4.80 to $5.06.  However, the company has cash reserves close to $6.5 billion and is eying further expansion to improve top-line growth.
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Global Healthcare, North American E-Commerce Businesses Could Impart Significant Value
Recently, the company announced its plans to acquire two Costa Rican logistics companies to expand its Latin American network.  While in Asia, UPS has opened two new contract distribution facilities in central and southern China in August. One of the two distribution facilities is 47,000 square feet in size and is located in Chengdu. The other facility is located in Shanghai, close to UPS’s international hub at the Shanghai International Airport and has a floor area of 70,000 square feet and is expected to cater to rising export demand from China. 
The global healthcare devices market was worth $340 billion in 2012 and is expected to grow 4.4% annually to reach $440 billion by 2018.  Fueling this rapid growth is the demand for technologically advanced healthcare systems in developing countries in Asia Pacific and Latin America. Shipping medical devices and equipment is a niche service and requires specialized handling. As a result, shipping companies can often charge a premium for such services. The expansion of the rapidly growing, premium priced healthcare devices segment in emerging markets of Asia Pacific and Latin America could significantly increase UPS’ top-line growth.
Additionally, the recovery in the U.S economy is expected to boost the $225 billion e-commerce industry.  Higher growth in e-commerce sales is advantageous to UPS, which offers delivery packages such as SurePost. UPS SurePost leverages U.S. Postal Service’s extensive ground delivery system to provide economical, small package delivery services to Business-to-Consumer (B2C) businesses across residential addresses throughout the U.S.
We expect revenues of approximately $55.5 billion for fiscal 2013. However, there could be potential upside to our Supply Chain and Other Businesses revenue estimate if the healthcare devices industry grows faster than 4.4% or if UPS captures greater market share in developing economies.Notes:
- UPS 8-K, UPS Investor Relations, July 2013 [↩]
- UPS to Purchase Two Costa Rican Companies; Boosts Customer Access to Global Markets, UPS Investor Relations, September 2013 [↩]
- UPS Expands Logistics Reach to Meet Emerging Demand in China, UPS Investor Relations, August 2013 [↩]
- Analysts: Device market growth will outpace pharma by 2018, October 2012 [↩]
- E-commerce and the global battle for Internet economics, CNN Money, June 2013 [↩]