UPS Margins Head Down on Fuel, China Tariff Risks The Next Headwind — Panjiva


UPS Margins Head Down on Fuel, China Tariff Risks The Next Headwind

Corp - Forwarders 157 Earnings 365 Global 722 Mode - Containerized 1005 Mode - Seaborne 1273 Theme - Rates 141

Third-party logistics operator (3PL) UPS reported third quarter revenues that expanded by 9.2% on a year earlier. That was driven by a 16.6% surge in forwarding revenues and 11.4% in freight handling in the supply chain business. The traditional packages business meanwhile saw a more modest 2.7% growth in volumes but was helped by a 4.0% rise in average revenues per parcel.


Chart compares UPS reported revenues to the top 12 freight forwarders*. Calculations include S&P Global Market Intelligence figures retrieved on October 23 2018.   Source: Panjiva

EBITDA margin of 13.5% was well below the 14.3% expected by analysts surveyed by S&P Global Market Intelligence. That was likely due in large part to a 1.4% point drop in profit margins in the international business due to “unforeseen currency and fuel headwinds”.

The rising fuel costs can be seen in a 43.1% rise in average bunker fuel costs for marine shipping in the third quarter vs. a year earlier and by 5.7% vs. the second quarter, S&P Global Platts data shows. In turn that has also caused a headache for container-lines as outlined in Panjiva research of October which led to a series of bunker-fuel surcharges and a 7.5% rise in container rates in the third quarter vs. the second quarter.


Chart compares China-outbound container rates to bunker fuel costs. Calculations include S&P Global Platts and Shanghai Shipping Exchange data.   Source: Panjiva

The increase in costs left the EBITDA margin below the 16.3% level seen a year earlier and at its lowest since at least 2013. That’s consistent with the pattern seen by both Fedex and K+N. It supports UPS’s push for a new round of efficiency improvements and technology investments.


Chart compares UPS EBITDA margin (earnings before interest, tax, depreciation and amortization vs. revenues) to the top 12 freight forwarders*. Calculations include S&P Global Market Intelligence figures retrieved on Oct. 23 2018.   Source: Panjiva

That bigger challenge will come from the expansion of tariffs on bilateral trade worth $360 billion between the U.S. and China. These were implemented fully on September 24 with rates set to be increased from January.

UPS had already seen a decline in its share of U.S.-inbound seaborne shipments, Panjiva data shows, after a 9.3% drop vs. a 4.0% increase for the industry as a whole in the third quarter.  With 60.9% of UPS’s U.S.-inbound seaborne traffic having originated in China in the third quarter the risks from tariff-led competition are particularly high.


Chart segments U.S. seaborne shipments in the period to Sept. 30 2018 by NVOCC SCAC. Bubble size indicates volumes handled in the past three months.   Source: Panjiva

*Forwarders included in aggregates include: Ceva Logistics, CH Robinson, DSV, Expeditors International, K+N, Nippon Express, Palapina, UPS, Fedex, Deutche Post, JB Hunt and XPO Logistics.

PANJIVA RESEARCH is a service provided by Panjiva, Inc. ("Panjiva") to relevant global subscribers, and are deemed to be Panjiva "Services" subject to the Panjiva Terms & Conditions of Use. Information contained within or made available via the Services is for informational purposes only and nothing in the Services shall constitute or be construed as an offering of financial instruments, or as investment advice or recommendations by Panjiva, Inc. or its affiliates of an investment strategy or whether to "buy", "sell" or "hold" an investment. The Services may include views and commentary about customers of Panjiva. No aspect of the Services is based on consideration of your individual circumstances, and you should determine on your own whether you agree with the information contained within or made available via the Services. Employees involved in Panjiva Research may hold positions in securities analyzed or discussed in the Services. Panjiva does not make any express or implied warranties, representations, endorsements or conditions with respect to the Services and the information contained within or made available via the Services, including without limitation, warranties as to the usefulness, completeness, accuracy, currentness, reliability or sufficiency of any information (including, without limitation, conclusions, statements, opinions, estimates, forecasts or projections of any kind) and expressly disclaims any implied warranties. Neither this disclaimer nor any of its contents may be forwarded or redistributed without the prior written consent of Panjiva. © 2019 Panjiva, Inc. All Rights Reserved.