Dive Brief:
- Major UPS shippers are forecasting softer peak season volumes than previously projected as a shortened holiday shipping period is expected to influence shoppers' behavior, executives at the parcel carrier said on a Q3 earnings call Thursday.
- As the year has progressed, about 100 of UPS’ major customers — which represent 60% of its network volume and 85% of its peak season volume surge — "continue to tighten up their forecasts," CEO Carol Tomé said.
- Still, UPS expects a strong peak season with higher Q4 revenue and volume in the U.S. compared to last year. "It'll still be a good peak, but just not as dynamic as people thought at the beginning of the year," Tomé said.
Dive Insight:
Heading into peak season, UPS' performance is on the upswing. Although Q3 per-package revenues fell 1.7% year over year in a highly competitive pricing environment, revenue and average daily volume increased during the quarter.
UPS believes the tempered expectations going into the holidays are driven in part by the tighter window to purchase gifts, according to Tomé. With only 17 shipping days between Black Friday and Christmas Eve, this year's peak season is the shortest since 2019.
"What forecasters and some of our customers are saying is, because of the tightness of the shipping season, that many customers will go into a store to complete their holiday purchases," Tomé said, rather than having those orders delivered by UPS.
Forty-five percent of consumers plan to make in-store purchases during the holidays, up 2% from last year and the most since 2019, according to a PwC report. Kelly Pedersen, partner and PwC Global Retail Leader, told Retail Dive that there are consumer concerns over receiving deliveries in time during the shortened period.
Ahead of a condensed peak season, UPS is looking to snag additional revenue from broader and pricier peak season surcharges. So far, it's seeing a strong "keep rate" on its peak season surcharges as it works closely with customers to manage the added fees, EVP and Chief Commercial and Strategy Officer Matt Guffey said on the call.
UPS' new contract with the U.S. Postal Service should also help the company's fourth quarter performance. UPS fully onboarded the Postal Service as an air cargo customer on Oct. 1, executives said on the call. The agency previously used FedEx for air cargo shipping.
"Now the volume is all-in, so the fourth quarter is going to look a lot different than the third quarter did," Tomé said.
