One of the biggest risks for the shipping industry is overall economic prosperity. FedEx (FDX) lowered its earnings expectations to $6.20-$6.60 as did UPS (UPS) bringing concerns of lowered consumer confidence back to the limelight. General decline in commercial activity is widespread. The Baltic Exchange Dry Index (BDI), often used as an indicator of economic health remains low.
At a more microeconomic level, retailers like Amazon (AMZN) are looking to increase shipping revenue which could introduce better margins for USPS, the carrier for free super saver shipping. Amazon spent $1.1 billion on free shipping this past quarter over just $461 million in revenue. The source is Amazon Prime, which offers members free 2-day shipping. In order to compete, FedEx and UPS have to lower costs on their premium services.
It's doubtful that consumers are willing to wait longer to receive impulse buys online which remains a point of tension with shipping companies. Ground shipping is less taxing and more profitable for carriers than express. Unless the economy can pick up and increase the scale of express services, free 2-day shipping is still members-only.
Compare the stock performance of UPS and FDX with the Standard & Poor's 500 Index
Written by Freda Ding