A lot has been made of the way business-to-consumer e-commerce demand is surging, and how package delivery companies like United Parcel Service and FedEx Corporation will benefit from it in the long term. However, it hasn’t been smooth sailing for those shippers just yet. Volumes have increased strongly during recent holiday seasons, putting pressure on both companies as they attempt to deal with the demand. Consequently, both companies have taken costly measures to improve their abilities to cope with peak. Has peak demand affected profitability, particularly in the fourth quarter?
Category: Industry News
Cargo pilots at UPS are threatening a strike — and it could be bad news if any customers get spooked.
Last week, pilots at package delivery giant United Parcel Service voted to authorize a strike if negotiations with the company break down. The pilots still need to be released from negotiations by the National Mediation Board for a strike to be legal, something that rarely occurs. As a result, UPS has characterized the strike vote as merely “a symbolic gesture” by the union.
While it may be a symbolic gesture, it’s not a meaningless one. With the threat of a pilot strike during the busy holiday season — even if it’s a low-probability outcome — and UPS drivers promising to support any pilot strike, customers could worry about relying too heavily on UPS. FedEx may be able to capitalize on this uncertainty to gain market share.
Pharmacists. High-security gated vaults. Sub-zero refrigerators the size of apartments. Forklifts zipping between rows of floor-to-ceiling boxes, standing several stories high.
This is what the inside of UPS’ main health-care hub in Louisville, Kentucky, looks like: 1.4 million square feet of temperature-controlled space occupying 40 acres down the street from the shipping giant’s WorldPort facility. It’s one of 50 specially designed warehouses catering to shipments of medical drugs, surgical devices, even human material such as blood and stool samples.
A look at the package delivery companies’ plans to deal with peak demand during the shopping season, and what it means for investors.
During most of the year, package delivery companies FedEx Corporation (NYSE:FDX) and United Parcel Service (NYSE:UPS) attract little attention from the public, but that all changes come the holiday season if they don’t deliver packages on time. However, investors should also focus on the holiday period because dealing with peak demand is probably the biggest variable in both companies’ earnings. Let’s look at what both companies are doing to prepare for peak demand during the upcoming holiday season.
This week, negotiators from the Air Line Pilots Association reached a tentative agreement with FedEx Express to give the latter’s pilots an immediate 10% pay raise (effective Nov. 2, 2015 ). Assuming FedEx pilots vote to approve the deal, this raise will be followed by additional raises averaging 3% per year, every year, over the next five years. On top of that, pilots signing onto the new contract will receive lump-sum signing bonuses ranging from $20,000 to $35,000, depending on rank and type of aircraft flown, almost of all which will be disbursed over the next nine months.
At the same time, new hires will see their monthly training pay double during their training periods, from $2,000 to $4,000 per month. And for those thinking about retirement, company-paid contributions to FedEx pilots’ defined contribution retirement plans will be also increased by about 2% of salary over the next five years.