5 Key Quotes from UPS on the Freight Industry and the Economy

Includes: CSX, FDX, UPS, WERN
by: David Jackson

Here are five key quotes from UPS (NYSE:UPS) conference call:

1. The state of the overall economy

It’s obvious to everyone in the business world that economic conditions in the U.S. continue to slow. Economists hold a bleaker outlook for the second half of this year and it was the case even three months ago. Soaring fuel prices, falling housing starts, increased unemployment, weaker consumer confidence -- all of this paints a picture of a faltering economy. While GDP and industrial production may bottom out in the second half of this year, recovery is expected to be a slow, drawn-out process. Predictions are that it will be 2009 before improvement in the economy becomes apparent.

2. The impact of rising fuel prices

Fuel had a significant impact in the quarter, increasing $470 million, or 67% over last year. Fuel price increases had ramifications beyond just the direct cost. They caused our indirect expenses to accelerate. Items such as purchase transportation, utilities, and the costs for outside service providers around the world. Crude prices increased from $100 a barrel in early April to $140 by the end of June. This rapid increase during the quarter magnified the impact of our fuel surcharge lag. As you know, there is a two-month delay in the application of fuel surcharg

3. Lower level of imports, but slowing exports too

Although export volume and revenue growth were robust, it should be noted that the 10% export growth was aided by the timing of Easter. Without this benefit, export volume would have increased around 8%. This is market leading growth. Import volume into the U.S. from every region of the world declined, however, but strong intra-regional activity continued outside the U.S. The second quarter saw a rapidly changing business environment, with export volumes posting slower growth with each successive month of the quarter.

4. China as a business opportunity

We are the in-country sponsor of the upcoming Olympic Games in Beijing. Starting three years ago, UPS began working with the Beijing organizing committee to develop and manage logistics for the games. We’re serving three Olympic villages, managing 35 game venues and four distribution centers, moving everything from kayaks to shotputs. During peak operation, UPS will have 2,000 people and 138 vehicles on-site. This is a complex undertaking that demonstrates our broad, worldwide capabilities. Our goal is to be the leading global package delivery, freight, and logistics company in China. This sponsorship is an important step in strengthening our brand presence in this key market.

5. Weaker revenue guidance

Now let’s look to the future, and I’ll address my remarks to the second half of 2008 in its entirety. Three months ago, we told you that we anticipated the domestic market would be flat to down 1% and that our volume would track market behavior. Current thinking is that the small package market will contract about 2% for the remainder of the year, as will our U.S. volumes, and we’ll see a continued decline in premium product.

The quotes are taken from the UPS transcript which was published on Seeking Alpha a few hours after the call ended. If you think I missed something more important than these quotes, feel free to copy and paste your quote from the full transcript and leave as a comment below.

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