- The Washington Times - Thursday, April 24, 2008


Falling shipments at United Parcel Service Inc. and FedEx Corp., which together deliver 80 percent of packages in the United States, suggest the economy is in a recession and unlikely to rebound this year, industry analysts said.

“This is what a recession feels like,” said Steven Marco, who manages $800 million including UPS shares at Marco Investment Management LLC in Atlanta. “The trucks are not as full as they used to be.”

UPS said yesterday that first-quarter shipments fell on the slowing U.S. economy and reported “no signs” of improvement while cutting its 2008 profit forecast.

Net income for the quarter rose to $906 million (87 cents a share) from $843 million (78 cents) a year ago, when results were reduced by one-time costs, UPS said. Operating profit declined 9.4 percent to $1.49 billion.

FedEx’s U.S. shipments dropped 2 percent last quarter, and the company said last month it would have “limited earnings growth” this year because of the slowing economy. Both companies are struggling with soaring jet-fuel, gasoline and diesel costs after crude oil prices surged 80 percent in the past year.

“We see no signs of economic strengthening in the second quarter,” UPS Chief Financial Officer Kurt Kuehn said.

FedEx Chief Financial Officer Alan Graf said last month that lower demand for express shipments in the U.S. will continue into fiscal 2009.

UPS, GE, and Union Pacific are among the bellwether companies that economist Chris Rupkey considers when making forecasts. Union Pacific’s automotive volume fell 13 percent and lumber shipments are down 27 percent for the first 14 weeks of the year. Two weeks ago, GE said 2008 earnings will miss forecasts.

“All three have seen a slowdown in their businesses, and this could presage a sharper downturn in the economy than we are anticipating,” said Mr. Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. “It was likely a very weak first quarter based on UPS and FedEx shipments.”

UPS and FedEx’s customers include Ford Motor Co., Dell Inc., and Amazon.com Inc., as well as banks and law firms. That gives them exposure to almost all industries, making them “coincident indicators” of economic health, said Rajeev Dhawan, director of the economic forecasting center at Georgia State University in Atlanta.

Drops in U.S. shipments, coupled with job losses and tighter bank lending standards, signal that the economy probably entered a recession in November or December, and may have a period of no growth for nine or 10 months, Mr. Dhawan said.

Fuel is partly to blame for earnings erosion at UPS and FedEx. Both companies plan to boost fuel surcharges for air shipments to 25 percent next month, from 20 percent, which is causing some customers to “rethink” their shipping needs, Mr. Graf said.

Shipping now makes up 5 percent to 10 percent of most manufacturers’ costs, up from 3 percent to 5 percent a couple years ago, said Norbert Ore, chairman of the Institute for Supply Management’s manufacturing survey committee.

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