United Parcel Service may have to reduce its operating costs as it continues to face worldwide competition from low-priced shipping services, according to The Wall Street Journal. The cost reduction is described broadly as "an across-the-board tightening up of expenses" by Kurt Kuehn, chief financial officer of UPS, but he insists that it is "certainly not a restructuring."
UPS has lower than expected earnings for second quarter
In reporting second-quarter losses, UPS experienced a lower number of flights, including internationally in Europe and Asia. While operating expenses for the shipping company increased 1.8 percent, operating margin fell slightly from 13.4 percent to 12.9 percent.
UPS mentioned in the WSJ it would have lower than expected earnings, saying "overcapacity in the global airfreight market, increasing customer preference for lower-yielding shipping solutions and a slowing U.S. industrial economy."
Domestic package volume up, international shipping down
While daily package volume in the U.S. market grew 1.9 percent year-to-year, as more domestic shoppers purchased items online, international shipping was down. Manufacturers and retailers around the world were planning to reduce costs by cutting down on UPS-provided services like express shipping, reported Reuters. These businesses have opted to plan their shipments with their supply chains to eliminate the need to hire companies like UPS for faster shipping. Its rival FedEx has also been reducing its amount of cargo flights out of Asia
"The art of this business is adjusting for current conditions but not overreacting," Kuehn said.
The result of this shift to other low-priced shipping services is profit dropped 4 percent as the expenses of UPS surpassed its revenue and earnings were down to 1.07 billion this year from 1.12 billion year-to-year. Revenue decreased by 3.2 percent in the company's supply chain segment.