US consumers’ embrace of low-cost ecommerce sites brought a “quite explosive” volume of shipments for UPS in the second quarter but failed to prevent the delivery company’s profits from falling by almost a third.
UPS chief executive Carol Tomé told analysts on Tuesday that the company had seen “customers trade down between services” in the quarter to its “more economical products”, with new ecommerce entrants “highly leveraging” SurePost, one of its cheaper services.
Shares in the company suffered a record drop, closing down 12 per cent at $127.68, their lowest level in four years.
Tomé did not identify the two new ecommerce groups that had started using its network, which have a similar profile to Chinese online retailers Shein and Temu, but told its earnings call “you can imagine who they are”. Chief financial officer Brian Newman said UPS had “invited” the ecommerce groups into its network.
UPS had seen a “shift towards value products with shippers choosing ground over air and SurePost over ground”, Tomé said, adding that it had also witnessed “a surge in lightweight, short zone volume moving into our network”.
The Atlanta-based parcel and shipping group, which is seen as an economic bellwether, reported a 30.1 per cent drop in its operating profits for the second quarter compared with the same period a year earlier.
It reported a smaller 1.1 per cent year on year decline in revenues, as it lowered its forecast for full-year adjusted operating margins to about 9.4 per cent, compared with the range of 10 per cent to 10.6 per cent it had given three months ago.
UPS earlier this year announced that it was cutting 12,000 jobs in an attempt to save $1bn following an expensive pay agreement with its Teamsters union. Executives said that its latest earnings reflected the “front loading of costs associated with our new labour contract”.
The company also had to pay a one-off $94mn international regulatory fee in its second quarter.