United Parcel Service Inc.
), the leading package delivery company has expanded its Less
Than Container Load (LCL) services to additional networks in
Asia, Europe, the Middle East, Africa and South America. This
brings the company's LCL network to 17,000 direct LCL lanes
serving 116 countries. UPS' efforts to expand its LCL lanes that
not only support its ocean business but also ensures cost savings
against expensive airfreight.
Given the slackness in the economy, the company believes yield
pressure will continue due to the changing business mix,
resulting from customer shift from premium products to cost
effective logistic solutions. As a result, the company's
expanding presence in the LCL space would imply a shift from its
airfreight business. This would ultimately benefit the cost
structure and serve as an attractive opportunity to add customers
in the present economy.
UPS has also added LCL lanes to countries like Vietnam
considering its low labor cost. Over the next few years, the
company plans to invest in new technology and facility expansion
in markets including France, Latin America, Vietnam, China and
Korea. In tune with this expansion spree, the company augmented
phase 1 of its European hub operations at Cologne/Bonn Airport in
Germany to increase capacity by 65%.
The expansion would cost about $200 million, with the entire
project is slated for completion at year-end 2013. Overall, UPS
projects capital expenditures of $2.4 billion for the year, which
is concurrent with its capital-spending estimate of 4% of
revenues over the next five years.
However, we remain concerned about volatile economic
conditions that continue to restrict market demand. Further, the
company is also exposed to unionized workforce and intense
competition from giants like
Air Transport Services Group, Inc.
Deutsche Post AG
), both with a Zacks Rank #2 (Buy), are the other stocks worth
considering in this sector.
UPS has a Zacks Rank #3 (Hold).
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