Happy Holidays for FedEx, UPS - Analyst Blog

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This looks like a holly jolly time for package delivery companies. The holidays are bustling for both FedEx Corporation ( FDX">FDX ) and United Parcel Service Inc. ( UPS ).

UPS expects to deliver over 120 million parcels globally during the Christmas week, representing a 6% increase from 113 million shipments in the same period last year. On average, UPS strikes business of approximately 15 million package deliveries daily but expects this to go up to 25 million in the week of Christmas.

FedEx is also expected to register strong growth in its shipments in the week of Christmas. This remains evident by approximately 17 million shipments on December 12, which marked the highest one day volume ever and approximately 10% increase from last year's highest volume in a day. The company believes the surge in e-commerce business remains one of the key contributors for delivering record shipments.

To meet the ever-growing demand, both FedEx and UPS have ramped up hiring. Last month, UPS reported to hire approximately 55,000 seasonal workers during the on-going holiday season. FedEx also hired approximately 20,000 seasonal employees this year, compared to around 17,000 a year ago.

Apart from the hiring, both companies have also raised their freight rates. UPS raised its general rate by 4.9% on ground packages, air express and U.S. origin international shipments, effective January 2011, followed by a freight rate hike of 6.9% on non-contractual shipments in the U.S., Canada and Mexico since August. In September, FedEx implemented a general rate hike of 6.75% followed by an average rate hike of 3.9% in U.S. domestic, export and import services in October.

Despite a looming economic outlook, FedEx, along with its peers like UPS have remained successful in implementing rate hikes given the strengthening of freight market fundamentals. Further, the softness in U.S. postal services' business has also aided these companies to gain significant market share.

It remains clear that the surge in freight volumes coupled by favorable pricing will remain the key growth drivers for these companies, boosting near-term results.

We are currently maintaining our long-term Neutral recommendation on UPS and FedEx.

FEDEX CORP ( FDX ): Free Stock Analysis Report

UTD PARCEL SRVC ( UPS ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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