Leading package delivery company, United Parcel Service, Inc. (UPS) has increased its freight rates by 5.9% on non-contractual shipments in the U.S., Canada and Mexico. The increase is effective Jun 10 and will be levied on less-than-truckload (LTL) and truckload (TL) rates, and other ancillary charges.
UPS increases its freight and general rates from time-to-time. For 2013, the company raised its rates by 4.5% in UPS Air and International Services products of the domestic package business. Ground Services rates were increased by 4.9%. Express rates and Airfreight (including Next Day Air, 2nd Day Air and 3 Day Freight between U.S. Canada and Puerto Rico) rates were increased by 4.9%.
The rate hikes remain a key driver of the company’s yield expansion in the current market scenario of low demand trends, which would eventually propel profitability. This remains evident by the company’s expected growth in its yearly profits, which are expected to grow in the mid single-digit range, resulting in operating margins of 14% in 2013.
Apart from the routine rate hikes, UPS has a series of initiatives underway that is expected to deliver industry leading margin and earnings growth over the long term. Key among these is a renewed focus on yield improvement in the U.S. Domestic Package division. Other drivers include increased export volumes, operating leverage benefits sand capacity expansion plans. Further, the company continues to expand its footprint in emerging markets such as health care, which could be a larger contributor to growth in the future. The business wins are expected to expand the distribution reach further to Asian and Latin American markets as well as emerging countries like China and Brazil.
We believe the growth initiatives will aid the company to deal with near-term headwinds such as surging fuel prices, substantial capital investment and high labor unionization. These would give UPS a competitive advantage over its peers like FedEx Corporation (FDX).
UPS operates with players such as Expeditors International of Washington Inc. (EXPD) and Radiant Logistics, Inc. (RLGT) and retains the Zacks Rank #3 (Hold).
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