UPS May Hike Charges for Holiday Package Surges
CHICAGO -- United Parcel Service (UPS) may charge major customers more for a surge in late, unplanned packages or turn down the business if it threatens disruptions during the peak holiday season, a top executive said Friday, trying to avoid a repeat of last year's delivery meltdown.
UPS and main rival FedEx (FDX), both considered U.S. economic bellwethers, are approaching their busiest time. Last year a last-minute surge in online consumer promotions left an estimated 2 million express packages stranded on Christmas Eve.
%VIRTUAL-pullquote-If it [a late surge] creates challenges and adds costs we would charge a premium.%"If it [a late surge] creates challenges and adds costs we would charge a premium," Chief Financial Officer Kurt Kuehn told Reuters. "If it puts our service at risk, we would have to deny [the business]."
Kuehn spoke after UPS, the world's largest package delivery company, posted higher-than-expected third-quarter profit, driven by rising U.S. consumer and business demand plus strong growth in Asia.
Kuehn said UPS remained concerned about U.S. railroad service problems -- UPS is a major rail customer -- saying "they need to improve their service metrics." The major railroad have struggled this year to meet demand due to a growing economy, rising oil-by-rail freight and a record harvest.
The problems especially affected UPS, which has invested $500 million to boost its infrastructure to handle the coming holiday season.
Like Memphis-based FedEx, UPS has worked with major retailers this year to get a clearer forecast for package volumes and online promotions to avoid a repeat of last year's debacle.
FedEx has said if a major retailer decides to offer a last-minute online promotion without notifying the company, which threatens its service, the company won't be able to handle the business.
UPS reported earnings a share of $1.32, up 14 percent from $1.16 a year earlier. Analysts expected $1.28 a share.
UPS shares rose 1.1 percent to $101.57.
Atlanta-based UPS confirmed its full-year profit outlook, predicting earnings a share of between $4.90 to $5. Analyst expected $4.95 a share.
UPS said annual package shipments should increase 11 percent year over year in December.
The National Retail Federation predicted U.S. holiday retail sales will rise 4.1 percent this year to $616.9 billion. Other forecasts are less rosy.
A survey of shoppers by PwC US and Strategy& projects the average household will spend $684 during the holiday season, down from $735 in 2013, although 41 percent of shoppers indicated they will spend more online than last year.
Citi Research (C) analyst Christian Wetherbee wrote in a research note that the company's profit outlook "looks a bit soft" and is below Citi's estimate. This implied that "while holiday volume will grow 11 percent, costs may be elevated," he added.
UPS posted quarterly revenue of $14.29 billion, up 6 percent from $13.52 billion last year, slightly above analysts estimates of $14.2 billion.