The rapid growth of express-delivery services has been a godsend for procrastinators who now push it to the limit like never before. Combined with the Internet, express delivery provides unparalleled speed.
IN THIS PACKAGE
- Military discipline helps couple build strong financial plan
- Credit scores extend well beyond loans
- One-stop shopping overseas is problematic
- Health accounts pale for retirement savings
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Taking stock
- Express-delivery services gear up for holiday rush
- The week ahead
- FedEx Corporation
See more topics »
Express delivery provides the greatest customer satisfaction of any service industry, according to a recent survey by the University of Michigan's Ross School of Business.
"The peak shipping week and peak shipping day before Christmas keep getting bigger and bigger as consumers get more and more used to gifts sent last minute through Internet orders," said Jon Langenfeld, senior research analyst with Robert W. Baird & Co. in Milwaukee.
Because consumers are reducing the holiday shopping they do in stores as online purchases grow, the supply chain has been altered. A strong U.S. economy, growth in Asia and Europe, and the ability to pass rising costs along to consumers via rate increases are significant factors.
This benefits express-delivery firms and, potentially, their shares.
Los Angeles-based Capital Research and Management Co. recently increased its United Parcel Service Inc. holdings from 5.9 percent to a 10.1 percent stake in the company. Citibank Inc. and UBS AG each purchased a portion of shares in the TNT NV express-delivery firm being sold off by the Dutch government as part of an effort to reduce national debt.
The important caveats are that this growing business must navigate through major trends in economic cycles, competition, fuel costs and labor issues.
Besides individual gifts shipped this holiday season, large retailers and manufacturers are shelling out big bucks for late-in-the-season air shipments of popular holiday products in short supply at stores.
For example, Best Buy Co. has airlifted PlayStation 3 consoles from Asia to the U.S. to help meet demand, while the Walt Disney Co. has paid extra to air-freight popular Mickey's Clubhouse play sets from China.
The global express-delivery giants benefiting from the holiday frenzy are:
UPS, the world's largest package carrier in terms of deliveries; FedEx Corp., the leader in number of air shipments; DHL International Ltd., a unit of former German government-owned mail monopoly Deutsche Post World Net; and TNT NV, a Dutch company that is No. 2 in Europe and often rumored as a takeover target because of its smaller size.
"Peak shipping season started a little later this year because the U.S. economy slowed in the summer months and retailers weren't very aggressive in ordering for the back-to-school and holiday seasons," said Helane Becker, transportation analyst with the Benchmark Co. LLC in New York.
Now that retailers have discovered consumers are alive, well and demanding key products this holiday season, Becker expects UPS will handle more than 23 million packages and FedEx more than 8 million in its peak shipping day Dec. 21.
"We're expecting a strong holiday retail environment that will support good, healthy volumes for FedEx and UPS," said Jim Corridore, equity analyst with Standard & Poor's Corp. in New York. "The drop in oil prices also helps these firms."
FedEx has gained market share from UPS on the ground and is holding on to it. Because UPS is raising rates more than FedEx, it doesn't seem to be trying to recapture that market share and is instead seeking improved profit margins, Corridore said.
"We're positive on the stock of FedEx and UPS, but for different reasons," Becker said. "FedEx is more of a growth company with a bigger Asian platform, especially in China, while we think of UPS as a ground-delivery company."
UPS, with its growing air freight and international presence, has greater revenue than FedEx. But FedEx's continued acquisition of ground-delivery companies is helping it to catch up.
"The message being sent from the companies is that they're trying to compete on service, but aren't going to compete on price," Langenfeld said. "UPS is more interested in the full supply chain and logistics, such as warehousing and heavyweight international freight forwarding, while FedEx has basically said it doesn't want to be in that space."
FedEx profits rose 40 percent in its recent quarter, while UPS had a 9 percent increase. On the labor front, the only major FedEx employee group with union representation is its pilots. But the Teamsters union that already represents UPS drivers has made organizing FedEx drivers one of its top priorities.
Though DHL is the world's largest shipper when the U.S. is excluded, it has less than 10 percent of the U.S. market and recent results here have disappointed. It is, however, investing significantly in the United States. Profits of parent Deutsche Post rose 30 percent in its recent quarter.
"DHL is growing off a lower base, but a lot of companies don't like the idea of having just two big shippers and we see opportunity for it," Becker said.
TNT, No. 4 in worldwide express delivery but a European powerhouse operating in 200 countries, received a multiyear contract to provide logistical services and component transportation for 2007 Chrysler Jeeps. Meanwhile, it has unloaded its lackluster freight-management business.
Andrew Leckey is a Tribune Media Services columnist.