UPS still delivering

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A much-anticipated parcel delayed in transit can be most vexing. Sometimes, though, a hold-up is good for you. United Parcel Services benefited in its third quarter as the cost of fuelling its fleet of brown trucks reversed sharply, in parallel (alas) with global economic prospects. Customer charges for rocketing fuel costs, however, take two months to respond, boosting its flagging US operations by $90m. Should oil prices stabilise or continue to tumble, this lag will also give the fourth quarter a helping hand.

It may be needed. UPS has seemed slow to appreciate its deteriorating environment, suggesting in July that the worst of the slump was over. Third quarter earnings of $0.96 a share surpassed expectations, but average daily volume for US packages fell 3.4 per cent. Modern businesses’ need for speed – or just-in-time delivery – means UPS no longer functions as a canary for US economic fortunes. But numbers of parcels dispatched still tend to move in synch with output, and volumes are forecast to fall 4 per cent in the rest of the year.

Customers shifting from pricier air options to road and rail could help UPS relative to higher-end competitors like Fedex. But UPS’s international operations, still posting strong volume growth of 7 per cent in spite of falling US imports, can only head one way as woes spread. Rather like UPS’s strategic plan for $200 oil, decoupling as a business model must, for now, be filed away.

With the business throwing off $4.6bn of cash this year, UPS’s confidence in its funding is such that it will continue buying back its shares, down 32 per cent this year. Ultimately, the severity of the expected Christmas retail slump will determine whether it hits its (broad) range for the fourth quarter. With growth in business to consumer flows now slowing more than other areas, signs are that fewer festive households will be waiting for parcels, timely or otherwise, come December.

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