United Parcel Service Inc may charge major customers more for a surge in late, unplanned packages or turn down the business if it threatens disruptions during the peak holiday season, a top executive said on Friday, trying to avoid a repeat of last year's delivery meltdown.
UPS and main rival FedEx Corp, both considered US economic bellwethers, are approaching their busiest time. Last year a last-minute surge in online consumer promotions left an estimated 2 million express packages stranded on Christmas Eve. "If it (a late surge) creates challenges and adds costs we would charge a premium," Chief Financial Officer Kurt Kuehn told Reuters. "If it puts our service at risk, we would have to deny (the business)."
Kuehn spoke after UPS, the world's largest package delivery company, posted higher-than-expected third-quarter profit, driven by rising US consumer and business demand plus strong growth in Asia. Kuehn said UPS remained concerned about US railroad service problems - UPS is a major rail customer - saying "they need to improve their service metrics." The major railroad have struggled this year to meet demand due to a growing economy, rising oil-by-rail freight and a record harvest.
The problems especially affected UPS, which has invested $500 million to boost its infrastructure to handle the coming holiday season. Like Memphis-based FedEx, UPS has worked with major retailers this year to get a clearer forecast for package volumes and online promotions to avoid a repeat of last year's debacle.
FedEx has said if a major retailer decides to offer a last-minute online promotion without notifying the company, which threatens its service, the company won't be able to handle the business. UPS reported earnings per share of $1.32, up 14 percent from $1.16 a year earlier. Analysts expected $1.28 per share. UPS shares rose 1.1 percent to $101.57. Atlanta-based UPS confirmed its full-year profit outlook, predicting earnings per share of between $4.90 to $5.00. Analyst expected $4.95 per share.
UPS said annual package shipments should increase 11 percent year over year in December. The National Retail Federation predicted US holiday retail sales will rise 4.1 percent this year to $616.9 billion. Other forecasts are less rosy. A survey of shoppers by PwC US and Strategy& projects the average household will spend $684 during the holiday season, down from $735 in 2013, although 41 percent of shoppers indicated they will spend more online than last year. Citi Research analyst Christian Wetherbee wrote in a research note that the company's profit outlook "looks a bit soft" and is below Citi's estimate. This implied that "while holiday volume will grow 11 percent, costs may be elevated," he added.