UPS prepares for slowdown in global delivery volumes

The Atlanta-based delivery company said Tuesday that it expects revenue of between $97 billion and $99.4 billion in 2023, down from $100.3 billion last year.

The outlook comes after the company posted a surprise decline in fourth-quarter revenue after delivering fewer items during the holidays than a year earlier. Softness in China trade lanes hurt the top line from UPS’s international segment, the company said. Average daily package volume fell 4.5% in the December quarter, although revenue earned per package rose 5.2%.

The drop in volumes is the latest sign that demand in the shipping industry is weakening amid a global economic slowdown and rising interest rates. UPS rival FedEx Corp. said last month that revenue slipped 3% and earnings fell by nearly a quarter in the three months ended Nov. 30. FedEx said the average number of packages it handled daily in the quarter fell 10.2%.

Trade growth worldwide is expected to slow this year as import demand weakens across major economies and several developing countries face shocks from debt and food insecurity, according to the World Trade Organization’s forecast in October.

UPS shares slipped less than 1% in premarket trading, though the company posted a stronger-than-expected profit in the most recent period. The company on Tuesday raised its quarterly dividend by 10 cents to $1.62 a share and approved a new $5 billion share-buyback program.

Both delivery giants have been raising prices to offset the global slowdown. The carriers said they will raise shipping rates an average of 6.9% across most of their services this year, following an increase of 5.9% in 2022 and 4.9% in preceding years.

UPS warned in October that it expected parcel volume during the final months of 2022 to be lower than a year earlier and to peak a little later, since inventory levels have broadly improved. Chief Executive Carol Tomé said at the time that UPS hadn’t yet seen any demand destruction but was planning to pour resources into improving productivity and delivering more profitable packages.

Ms. Tomé’s latest strategy of “better and bolder," a change from “better, not bigger," directs the company toward using digital tools to improve productivity. The earlier strategy focused on shipping packages for its more profitable business, and jettisoning shipping volume where it was making less money. The company is projecting to boost its capital spending this year to $5.3 billion from nearly $4.8 billion in 2022.

UPS is also facing potentially contentious labor negotiations this year with the International Brotherhood of Teamsters, a union that represents around 350,000 UPS employees. Some UPS customers have already reached out to other carriers for business-continuity discussions in the event of labor disruptions.

In the latest period, revenue slipped 2.7% to $27.03 billion, missing analyst expectations by more than a billion dollars, according to FactSet.

Earnings came in at $3.45 billion, or $3.96 a share, up from $3.15 billion, or $3.52 a share, a year earlier. Stripping out one-time items, adjusted earnings were $3.62 a share, above analyst expectations of $3.59 a share.

This story has been published from a wire agency feed without modifications to the text