[040820.EN.BIZ] Ecommerce Surge Experienced by UPS Attributed to Covid Scare

ECOMMERCE got a boost from the Covid-19 scare if the surge in online shopping posted by United Parcel Service is anything to go by, reports the Associated Press.

UPS says shipments from businesses to US consumers soared 65 per cent in the second quarter, helping lift the delivery giant to a US$1.77 billion profit.

In April, UPS executives thought that online shopping would slow down after the early days of the crisis.

"Instead, we saw just the opposite," said new CEO Carol Tome. Consumer online spending surged as stores closed, people sheltered at home, and the government sent them checks, she said on a call with analysts.

The company's volume jumped 23 per cent to more than 21 million packages a day, and revenue climbed more than 13 per cent.

But while stay-at-home orders and other restrictions to slow the spread of the new coronavirus have meant more business for the delivery companies, it has also strained their networks and threatened to drive up costs.

Deliveries to homes are less lucrative - UPS domestic revenue per piece fell five per cent in the second quarter - and they are more costly because drivers must cover more distance between drop-offs.

UPS and rival FedEx have responded by imposing the kind of surcharges more commonly associated with Christmas to cover their increased spending. They have raised prices on bulky shipments and on retailers whose volumes have risen sharply during the crisis

Ms Tome hinted that UPS could raise prices further on big retailers - most of them are even more dependent on online orders now because many consumers are afraid to go back inside stores.

"While retailers may squawk at price increases that come their way, large retailers have a way to spread that across (many items they sell) and nobody knows," she said.

Ms Tome, 63, is a former chief financial officer at Home Depot and longtime UPS board member who became CEO on June 1. In her first earnings call with investors, she hinted at changes at the 113-year-old company.

She suggested that in the past UPS chased volume instead of profits and "over-engineered" things by, for example, offering too many services that complicated the company's operations and confused customers.

Second quarter profit at the Atlanta-based company was up five per cent from year-ago earnings of $1.69 billion.

Revenue rose more than 13 per cent, to $20.46 billion, easily beating the $17.34 billion average forecast from Zacks Investment Research.

Helane Becker, an analyst at financial-services firm Cowen, predicted UPS will do well in the third quarter, but she said UPS will be challenged to handle rising e-commerce volume during the peak shipping season before Christmas.

"The solution may be increased surcharges to limit volumes during peak, which again would be positive as UPS looks to improve margins of residential delivery," Ms Becker wrote in a note to clients. "Another solution would be to limit the amount of low margin volume it accepts."

Source : HKSG.