October 8, 2024

Record Online Retail Sales Buoy U.P.S. and FedEx

There is another less obvious beneficiary of the e-commerce boom: the two major package delivery companies, United Parcel Service and FedEx. And even now, thanks to wrong sizes, awkward gifts and ill-considered purchases, the companies are riding a holiday wave.

U.P.S. said it expected to receive 550,000 returns on Tuesday, which it expected to be the busiest return-shipping day of the year, with the total for the week projected to rise 7.7 percent from a year ago. FedEx said it expected heavy return shipments throughout January.

“It doesn’t slow down much after the holidays, despite what some people may think,” said Ken Burkeen, director of retail and consumer goods for U.P.S.

Good news for shipping is usually good news for the economy as a whole, economists say. FedEx, for example, hired 20,000 holiday workers to deal with extra e-commerce purchases, an 18 percent leap from 2010, while U.P.S. hired 55,000 workers, an increase of 10 percent.

“There’s a trend of buying more things online, and the way that’s ultimately delivered is via U.P.S., FedEx or the Postal Service,” said David G. Ross, an analyst at Stifel Nicolaus. “They’re all winning.”

However, shipping and logistics businesses that don’t deal heavily with e-commerce have been experiencing sluggish growth as the recovery drags.

Cargo coming through many American ports leading into the holidays was lower than many had expected, which affected rail and road shippers.

“I wouldn’t say that the peak season is the true peak that you and I have traditionally seen,” said Clarence W. Gooden, chief commercial officer for CSX, the rail and trucking company, in the company’s October earnings call. “It’s nothing to write home to Mom about.”

Air freight in November, the most recent month available, fell 3.1 percent below November 2010, according to the International Air Transport Association.

Yet FedEx and U.P.S. have benefited as free shipping on purchases and returns have become more common. Nordstrom, Zappos and Piperlime are among the retailers offering free shipping and free returns with no minimum purchase.

Between Thanksgiving and Christmas, 92 percent of e-commerce sites offered free shipping, according to the National Retail Federation. And that attracted additional customers: more than a third of shoppers surveyed by the federation said they would spend more online during that period if shipping were free.

While Mr. Burkeen of U.P.S. said final numbers for the holiday period were not yet available, “we are seeing an increase, driven in part by more online retailers offering free shipping for the purchase and for the returns,” he said.

FedEx executives said last month that they were expecting 15 percent year-over-year growth in the e-commerce business between Thanksgiving and Christmas, versus a 12 percent growth rate in 2010.

The jump in e-commerce purchases has pushed FedEx and U.P.S. to come up with new services, analysts said.

For instance, both companies are working with the Postal Service to handle the last leg of some deliveries, which translates into a cheaper shipping option for retailers and shoppers.

Mr. Ross said FedEx’s version of this, called SmartPost, was especially well developed.

“The most expensive part of FedEx’s operation is delivery to the home,” he said. With SmartPost, “they ship as much as they can direct into the local post office, and pay the local post office a certain price per package to deliver it for them,” Mr. Ross said.

“When you look at all of their divisions, that is the one that has seen the most growth,” he said. U.P.S.’s version, called SurePost, “is not as big as SmartPost is and they’re not targeting its growth as much as FedEx is.”

While shipments to consumers make up about one-third of the volume for the shipping companies, those shipments are growing faster than business-to-business shipments, Mr. Ross said.

Over all, “for parcel volumes as a whole, the outlook remains positive for FedEx and U.P.S.,” said Benjamin Hartford, an analyst for Robert W. Baird.

Still, the free shipping is not necessarily good for everyone. While free shipping does attract customers, analysts and shippers caution that the shipping costs show up elsewhere.

“It’s not free,” Mr. Ross said. “Somebody is paying the carrier to transport it. Either the retailer eats it, or it factors into the price of the overall product.”

Mr. Burkeen said easy returns could affect prices, too. “Sometimes the retailer will mark up their product assuming there will be a certain percentage of sales that will need to be returned,” he said.

Article source: http://feeds.nytimes.com/click.phdo?i=495eb2d28d7a1b0378e37324eabcf156