Online sales ease crunch for U.S. package giants

The U.S. economy is being threatened by everything from the housing credit crunch to high gasoline prices, but John Nikolich has yet to see it.

With oil nearing the USD 100-a-barrel mark, equity home loans drying up and retailers forecasting low fourth-quarter sales growth, analysts say a “weak peak” season looks inevitable.

“With all those headwinds coming together, we’re not expecting an overly fabulous peak retail season for anyone this year,” said Jim Corridore, an equity research analyst at Standard & Poor’s who covers FedEx and UPS.

Indeed, neither company seems to expect much beyond modest package volume growth.

Officials at UPS said in October that its growth this peak season would be slower than in the previous four years. FedEx last week cut its forecast for the company’s current quarter that ended Nov. 30, citing fuel costs and weak freight volumes in its trucking unit.

ONLINE BOOST

But the saving grace for this year’s peak season? While in-store retail sales will see slight growth, online sales are expected to rise at a far higher pace.

“While UPS and FedEx are not immune to an economic slowdown, they should continue to perform well thanks in part to online sales,” said Jon Langenfeld, an analyst at R.W. Baird & Co.

Langenfeld has an “overperform” rating on UPS and a “neutral” rating on FedEx, which he said is more exposed to U.S. economic weakness due in part to its trucking unit.

Although consulting firm TNS Retail Forward has projected the credit crunch will slow overall retail sales growth in November and December to 3.3 percent — the lowest since 2002 — bringing the total to some USD 471 billion.

Though still a small portion of that total, as in previous years online sales should grow much faster than in-store sales. TNS predicts they will jump 18.5 percent to nearly USD 42 billion.

“We do expect to see a rising percentage of package volumes coming from the e-commerce channel,” UPS spokesman Norman Black said. “This is a trend we’ve seen for some time and we don’t expect that to change. People like shopping online.”

In a press release on Oct. 29, FedEx CEO Fred Smith noted that despite slowing overall U.S. economic growth “e-commerce will continue to drive holiday spending” this year.

“Online sales should be a core component of the growth they (UPS and FedEx) are predicting,” S&P’s Corridore said.

Corridore added he was skeptical Deutsche Post unit DHL, with its smaller U.S. presence, could take market share from UPS or FedEx at this point due to lingering memories of network glitches after DHL bought Airborne Express in 2003.