Retail Focus Podcast Quick Scan: UPS, USPS, & FedEx

By Gavin | October 25, 2019

For postalexperience com pos scan and all three major US shipping companies are in the news in large part due to e-commerce, that's what we're taking a look at on this retail quick scan, and we begin with UPS.

News is broken that UPS will begin charging a surcharge on packages delivered at or around Black Friday and Cyber Monday as well as in the week leading up to Christmas. Let's take a look at these surcharges.


Charging a surcharge on packages delivered at the holiday season

It will be 27 cents for all-round packages delivered during the lead-up to the holiday season, from November 19th to December 2nd, and then in the lead-up to Christmas from December 17th to December 23rd, now this doesn't affect packages delivered to a business address, only to packages delivered to a residential address.

What's more is that we'll see additional surcharges on the next day, second day, and third day, shipments in the week leading up to Christmas. The idea here is they're not levying it on the Black Friday and Cyber Monday packages that they're delivering.

Because those aren't popular options around that time of year for customers being at customers if they're buying gifts will typically be willing to wait two or three days, if they get a better deal on shipping now the question becomes who does this effect.

Ecommerce businesses that will be eating this additional cost

The reality of it is it's not going to affect the end consumer, all that much at least directly in part because of the promotional pricing, we typically see around Black Friday and Cyber Monday usually the promotional pricing includes offers of free or reduced shipping.

So in all likelihood it's going to be e-commerce businesses that will be eating this additional cost, this will cut into their margins further, and as we've covered in the past e-commerce businesses don't always have the most robust of margins, so this could be certainly very impactful on the retail industry.

The United States Postal Service

The second shipping business that's been in the news of late is the United States Postal Service, this comes after JCPenney CEO Marvin Ellison spoke at a Piper Jaffray conference in New York last week, and he mentioned that the United States Postal Service along with UPS and FedEx may have a difficult time keeping up with the increased demand of e-commerce business, and in fact may be a function that will hold e-commerce back in the United States now.

In an article published on the street, the United States Postal Service issued a rebuttal to this idea, they mentioned infrastructure build-outs to facilitate further eCommerce growth, and they also mention indirectly their partnership with Amazon, because of their partnership has led them to bolster their technology infrastructure.

And also it's allowed them to look at what they're doing operationally in terms of e-commerce. If Amazon delivers a package to a USPS hub by 9:00 a.m. those packages will go out to customers on that same day, there's a priority, there the perhaps wasn't before with e-commerce.

Won't hinder the continued growth and development of e-commerce

But I spoke to a postmaster here, this week oversees a large number of post offices and post office workers, and he had something interesting to say, not only our parcel volumes up at the Postal Service as we all basically knew they're up, significantly they were up 65 percent in 2016, year over year, over 2015, and what's more year-to-date, this year in 2017 their parcel volumes are up another 60 percent over an already robust year in 2016.

Now you would think that that would cause some issues in terms of staffing, some issues in terms of getting those packages out, but he mentioned that the volume of traditional mail, your letters, your advertising circulars, that type of thing have gone down so much, that it's allowed them to reallocate resources and also some other person to focus more on parcels.

That's something that doesn't get talked about a lot when we discuss shipping companies starting to scale up for e-commerce, and its years as though the future is true, if not altogether bright for the Postal Service, at least one that won't hinder the continued growth and development of e-commerce.

How much success FedEx is

Now let's talk about the third u.s. shipping giant in FedEx. The reason they're in the news this week is that they released their fourth-quarter earnings after the market closes on Tuesday, and more so than earnings per share, more so than any other metric.

We're going to be looking at bottom-line margins for FedEx to see how much success they're having operationally after they've added staff and also spent additional money towards payroll.

As we see here that they disappointed analysts in their prior two quarters, in quarter three their son-GAAP earnings were two dollars and thirty-five cents per share versus an expectation of 263. In their second-quarter, it was 280 per share versus expectation of 291.

The more telling with FedEx is those pesky margins

But I think what's more telling with FedEx is those pesky margins and margins have been down over the last couple of quarters over the previous year, and they've been down in all three of their major divisions, now sure they're taking a little bit of a margin hit due to some expenses incurred from folding the newly acquired TNT Express into the hold.

But you see on the screen there, FedEx Express down from nine points one percent 28.6% adjusted in terms of their bottom-line margins, FedEx Ground was down from twelve point six percent to 11 percent, and Freight was down in terms of margins three point nine percent to two point seven percent.

All of that is year-over-year, as of the last quarter they mentioned several different reasons for this one being, of course, personnel, as they bring increased staffing, another being higher wages across the board.

Higher rent for FedEx Ground

Now an interesting thing that they did mention was higher rent for FedEx Ground. We don't think of FedEx Ground as a typical retail business, but in that division, they do have to keep offices in various corporate centers, business centers and commercial business districts throughout the country.

As we've talked about the price of commercial real estate going up in the price of commercial rents going up to do the rents go up for FedEx, so it's an interesting thing to keep in mind. As you look at this, the next quarterly release our take is that the margins will begin to stabilize and eventually grow again for FedEx.

Once they begin to optimize the output of this new workforce that they've brought in and bolstered over the last few quarters, that'll do it for this retail focus quick scan.