FedEx, TNT, DHL and UPS: poor performance suggests more must be done to combat recession
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28 July 2009 | Published by Datamonitor
London.
Despite severe cost cutting programs, the integrators (DHL, TNT, FedEx and UPS) have all recorded a major drop in profits in the last quarter, largely due tosignificantly lower volumes as well ascustomers opting for cheaper alternatives. However, both DHL and UPS companies have gained some significant ground on their competitors also affected by the current recessionary climate, and are remaining cautiously optimistic despite there being no clear date for an economic recovery just yet.
Express giants post declines in Q2 revenues
Since the last set of poor results was announced by FedEx last month, in its Q2 results presentation yesterday TNT announced a double digit decline in revenues in its express division despite volume decline bottoming out in the last few months. Similarly DHL Express’ revenues fell by 28.6% in Q2; even after discounting the effect of its exit from the US domestic market, organic revenues fell by more than 15%. UPS saw a similar decline in revenues, as lower volumes and a lower yield per item (as a result of lower fuel surcharges), customers sending lighter packages, currency effects and a negative product-mix as customers opt for cheaper alternatives, all impacted both its US domestic and international businesses.
However, both companies were able to gain significant ground on major freight forwarders in the supply chain service and freight markets, despite this market segment suffering more from the economic crisis than the small package/express market. DHL was able to win large contracts in the life science, fashion, industrial, high tech and automotive sectors, but saw overall revenues decline due to lower rates and fuel surcharges.
UPS’ freight volumes decreased by just two percent, in sharp contrast with the industry overall, which showed a double-digit decline, indicating a large gain in market share for the company. The recent opening of healthcare freight-handling facilities in Puerto Rico and the Netherlands underlines UPS’ strategy to strengthen its position further in this sector.
Datamonitor believes the structural changes that have taken place in the express industry in terms of geographic focus, distribution models and customer preferences will require the leading firms to reorganize their networks. This implies shifting the geographic focus to emerging markets (such as South America and the BRIC countries), and improving their road networks in order to cater for customers requiring alternative transport modes. The rise of e-commerce has been another fundamental change in the distribution models used by express customers, which has prompted express firms to increase their home delivery distribution capabilities and exploit one of the few remaining growth engines of the express market, says Datamonitor logistics and express senior analyst Erik Van Baaren. “The development of industry-specific solutions combined with a global integrated service is another way for express companies to counter the negative effects of the economic downturn which, despite showing signs of receding, does not appear to have entered a phase of recovery yet.”
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Notes to editors
Further Information
Mr. Erik Van Baaren, Datamonitor Logistics and Express senior analyst, is available for comment.
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