Express success in Q3 as integrators prosper

Express parcels

Over 2020, the Coronavirus pandemic has caused unprecedented disruption to the logistics industry.  However, towards the end of Q2 and during Q3 economic activity began to recover as virus control measures were lifted. In line with this, the express sector saw a boom in volumes and revenues as well as profits. Deutsche Post DHL Group, FedEx and UPS’ recent financial results show the surprising growth.

The integrators’ most recent results have shown revenue growth for their whole business. For the quarter ending September 30, DHL saw its revenue increase by 4.4% y-o-y to €6.2bn, whilst UPS announced consolidated revenue of $21.2bn, a 15.9% increase y-o-y. FedEx (financial year different to other companies) reported its Q1-20 results for the period ending August 31, with total revenue reaching $19.3bn, up by 13.5% y-o-y.

The express operations of the integrators have interesting stories to tell, as the increase in volumes is a large part of revenue growth and most importantly profitability. All companies recorded quite remarkable and somewhat unexpected results.

DHL’s Express division revenue rose by 14.6% in Q3-20 to approximately €4.9bn as operating profit rose by a staggering 65.9% over the prior-year level to reach a record €753m. This growth is partly driven by volumes which were significantly higher in all regions of the world during the entire third quarter. The network also adapted to respond to the increased share of B2C business as well as the return of B2B volumes.

FedEx’s Q1-20 results reported the Express segment revenue rose to $9.6bn, an increase of 7.9%. Operating income more than doubled compared to last year’s performance, showing an income of $710m in Q1-20, up by 149.1% from $285m in last year’s first quarter. The revenue rise can be attributed to volume growth seen in Asia Pacific and Europe as a result of strong demand.

For UPS, its Domestic Segment reported a 15.5% revenue increase to $13.2bn as its average daily volume increased by 13.8%, with growth across all products and continued elevated domestic demand. Despite this, operating profit fell by 9.7%, to $1.1bn. The International Segment’s revenue increased by 17.0% to $4.1bn. The average daily volume grew by 12.1%, with double-digit export volume growth globally and continued strong outbound demand from Asia. Unlike its Domestic counterpart, the International business reported its operating profit to have increased by 44.8% to $966m from $667m in Q3-19, showing the segment is almost as profitable despite Domestic having more than three times the sales.

Overall, there are several factors behind the performance of the express sector over the Q3 period. After the severe weakness in economic activity earlier in the year, the build-up in demand and requirement to re-stock inventories led to a surge of volumes once things reopened. As economies began to reopen and recover, volumes for B2B improved and B2C continued on its upward trajectory. The lack of air freight capacity actually contributed to the integrators success as shippers turned to them to carry their volumes because of their large air networks after other logistics markets saw capacity crumble under lockdown measures. The rapid growth in cross-border e-commerce seen by all integrators, especially from the Asia Pacific region was a large driving force in the success during Q3. The expansion was above and beyond compared to the strong domestic e-commerce growth rates.

The upturn brought by Q3 and easing of pandemic measures led to improved performances by DHL, FedEx and UPS. The increase in volumes and boost to revenues is significant as was their ability to operate at such a high capacity but most importantly the integrators grew profits in a time when many other providers were making losses.

Source: Transport Intelligence, November 17, 2020.

Author: Holly Stewart