UPS expands preferred ocean freight delivery
The shipping giant will provide additional port access in Germany, the Netherlands, Belgium and the United Kingdom.
UPS first launched its preferred less-than-container load (PLCL) freight service in the spring of 2011 -- to provide shippers with an intermediate option between the fast air freight and the economic standard ocean freight. The company claims to provide up to 40% faster door-to-door deliveries in the U.S., with additional visibility of shipments, as compared to its own standard LCL service.
In slightly over two years time, UPS has expanded the product's geographic reach at a rapid pace, and now supports traffic from 26 Asian ports in addition to the four new European ports mentioned.
Offering Viability Under Current Economic Conditions
UPS leverages its extensive ground network, used for express package deliveries to reduce inland distribution time by up to 15 days, for shipments made by this mode depending upon the destination. It also combines advanced tracking technologies with the offering, to increase visibility that allows companies to better plan their inventory management.
Faster shipments mean lower inventory costs for companies. However, total distribution costs for companies shoot up disproportionately by the use of the fastest mode, i.e. air freight, while the standard ocean freight shipments can take weeks to reach customers. In a world where companies are aggressively cutting costs to improve profitability, due to muted or negative top line growth in many sectors, an intermediate offering like the PLCL by UPS makes perfect sense.
The growing focus on ocean freight was also visible in the third quarter earnings report released by Fedex (FDX) on March 20. (See more on this: FedEx Revised To $105: Ground Shipping Carries The Business Amid Slower Express Demand)
Priced higher than the standard LCL service, the rapid expansion of PLCL network by UPS, driven by increasing demand for the product, is one of the key factors driving our forecast for the company's supply chain and other business revenue forecast. We currently expect the segment revenues to increase at a 3-4% CAGR over the forecast period, to reach around $8.4 billion.
We currently have a $85 Trefis price estimate for the UPS stock.
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