“A deceleration in U.S. retail sales growth and certain non U.S. markets remain challenged”. This is the key message from UPS’ latest results for the first quarter 2023.
Certainly, the past quarter has not been buoyant for UPS. At the core US Domestic Express business volumes fell by 5.5% year-on-year for business-to-consumer and 5.4% for business-to-business.

The picture in ‘International Express’ traffic is not so different, falling by 6.2%. Operating profits at the Domestic Express business fell by 12.7% and at the International Express business by 28%.

The Supply Chain Solutions division also saw deteriorating business conditions, with what UPS’ described as “softer global demand, especially out of Asia” driving down “Forwarding market rates and volume”. The only good news was that the contract logistics continued to profit from demand in health care. For the business as a whole revenue fell by 22% year-on-year but operating profit fell by 46.4% to $258m.

For the whole of UPS, revenue fell by 6% year-on-year to $22.9bn whilst operating profits fell by 22.8% to $2.55bn. The impression seems to be that even in the US, consumer demand is weak with internet retailing continuing to fall. Slightly surprisingly, demand outside the US is even weaker, with Asia having taken a sharp downward shift and US exports to the region falling. Possibly this might be influenced by weak demand for airfreight due to high inventories. The situation in forwarding is in line with other companies results, none-the-less it confirms that both rates and volumes are continuing to head down.

The management of UPS described that they had expected at the beginning of the year, “modest recession-like conditions in the first two quarters of the year”. This seems to have come to pass. The disturbing implication of UPS’ results so far is that the second-half of the year may also see weak demand. In the face of a strong supply in land, sea and air freight markets, it would appear likely that prices will continue to fall.


Author: Thomas Cullen

Source: Ti Insights

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