UPS delivers a warning on economy and earnings
UPS is responsible for transporting approximately 6% of the nation’s gross domestic product (GDP) and 2% of the world’s GDP in its trucks every day, saying it’s “Moving our world forward by delivering what matters.” On April 25, instead of delivering packages in its signature brown vans, the shipping giant delivered a warning about the US economy.
In its Q1 2023 financial report, UPS CEO Carol Tomé shared, “In the first quarter, deceleration in US retail sales resulted in lower volume than we anticipated.” As a result of this slowdown, the carrier experienced a 6% decline in revenue from the first quarter of 2022 and a 21.8% decrease in profit (22.8% drop on an adjusted basis).
The takeaway? The US economy is slowing down.
2022 was a record-breaking year. What happened?
In January of this year, UPS announced that its 2022 revenue reached $100 billion for the first time since the company’s founding in 1907. Despite that success, the UPS forecast for 2023 was “cloudy, at best,” with an initial projection for revenue between $97 billion and $99.4 billion.
It’s certainly been a cloudy 2023, with the carrier adjusting its full-year forecast to achieve a consolidated revenue of around $97 billion. The UPS website states, “In January, UPS provided a range for its 2023 financial targets based on the macroeconomic forecast at that time.” However, things have changed since January. “Over the first quarter of 2023, the global volume environment deteriorated due to challenging macro conditions and changes in consumer behavior. As a result, UPS expects full-year revenue and adjusted operating margin to be at the low end of its previously guided range.”
This trend isn’t limited to UPS
Some may wonder whether these findings are limited to UPS. Is it possible that the looming UPS strike and FedEx’s soaring stock means the problem is a UPS issue instead of an economic one?
Unfortunately, UPS isn’t alone in these reports.
US manufacturing requests are down 40% in China, impacting the ocean freight, trucking, and rail industries. In what J.B. Hunt Transport Services’ president Shelley Simpson calls a “freight recession,” ocean freight orders are down 50% since 2022, forecasting a sharp downturn in the industry since 90% of the world’s trade moves via the water.
What does this mean for your business?
Tomé predicts, “Given current macro conditions, we expect volume to remain under pressure.” In other words: this dip wasn’t a fluke.
If your business model relies on an e-commerce strategy, you may notice a decline in orders, and the carriers might raise rates to combat the drop. If your UPS or FedEx contracts are contingent upon shipping minimums, now is a good time to renegotiate your contract. You don’t need to wait until your contract ends to renegotiate, and companies that rely on ShipRx to help with their parcel rate negotiations frequently lower shipping costs by 20%-30% or more.
Get in touch with us today to find out how you can save money on shipping— no matter what kind of uncertainties we face with the economic environment.
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