The global shipping sector navigates uncertain territory, and UPS, a key player, feels the impact. The shipper’s stock fell 12% on what was described as its worst day on record.
UPS has blamed a global freight recession for its current problems. During its second-quarter (Q2) earnings call this week, the company admitted that it came in below expectations.
The logistics business is facing a challenging quarter, marked by missed revenue targets and a significant drop in stock.
Although UPS attributes its recent performance to global factors beyond its control, it remains to be seen if other logistic giants will suffer, too.
UPS Q2 performance
CNBC reports that UPS had to adjust its full-year operating margin guidance following this blow to the business.
It now predicts this year’s revenue to be approximately $93 billion, revised from a previous forecast of $94.5 billion. Full-year capital expenditures have also been adjusted downwards, now expected to be around $4 billion instead of $4.5 billion.
“Our revenue came in just short of the low end given the current volume momentum we are now experiencing in our business,” says UPS CEO Carol Tomé.
Operating profit fell by nearly a billion dollars to $1.94 billion.
What is behind the decline?
UPS has labeled this quarter a “significant turning point” for the company. “As expected, our operating profit declined in the first half of 2024 from what we reported last year,” says Tomé.
However, the company is optimistic about the challenges ahead and hopes to “return to operating profit growth.”
Weak freight demand
Weak freight demand impacts volume and pricing. This has been felt across the board, as trucking companies have started shedding jobs.
According to the Wall Street Journal, the trucking industry lost a seasonally adjusted 5,400 jobs in May, the largest decline in a single month in nearly a year.
Changing product mix
The company has also alluded to the “changes in product mix” that could have contributed. And it’s far from over. The product mix is expected to continue to put pressure on revenue.
There is an expectation that the operating profit will start picking up again from the next quarter.
Cost pressure
The increased price of labor and recent labor contracts have pressured UPS’ margins.
UPS moves nearly $4 billion worth of goods daily, about 5% of the country’s gross domestic product.
The labor bill has also swollen after a five-year deal was signed last year. At the end of the cycle, an average UPS driver’s salary would have increased to $170,000.
What does this mean for the logistics sector?
As a critical player in logistics, this will have a notable impact on the logistics sector.
Weak freight demand has a domino effect on pricing pressures. Translogistics says changes in supply and demand can directly affect freight shipping rates. Like a freight recession, rates may also be more competitive during quieter seasons when carriers aim to fill their capacity.
NOW READ: Exclusive: Freight’s shifting tide, oversupply and demand dynamics
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Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
