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UPS Hikes Rates for 2014

Zacks Equity Research

United Parcel Service, Inc. (UPS) has announced its rate hikes for 2014. The company is increasing rates for UPS Ground, Air and International, and Air Freight within the U.S., Canada, and Puerto Rico and between these markets by 4.9%. We believe the rate hikes will add to the company’s revenues and expand margins going forward. 

UPS increases its freight and general rates from time-to-time. For 2013, the company raised its rates by 4.5% in UPS Air and International Services products of the domestic package business. Ground Services rates were increased by 4.9%. Express rates and Airfreight (including Next Day Air, 2nd Day Air and 3 Day Freight between U.S. Canada and Puerto Rico) rates were increased by 4.9%.

In May, the company increased its freight rates by 5.9% on non-contractual shipments in the U.S., Canada and Mexico, that will be levied on less-than-truckload (LTL) and truckload (:TL) rates, and other ancillary charges. The rate hikes remain a key driver for the company’s yield expansion in the current market scenario of low demand trends, which would ultimately propel profitability. This remains evident by the company’s expected growth of 4% to 5% in its yearly profits. Further, the company expects operating margin to expand around 8% despite the ill effects of a sluggish international airfreight market and continued investments in healthcare.

Apart from increasing rates, UPS is currently looking forwarded to business growth during the holiday season. It expects peak season sale to exceed beyond Christmas and continue to mid January 2014. The company expects to pick up over 34 million packages globally on its peak day, December 16. United Parcel Service is focusing on enhancing its offerings with freight solutions such as UPS My Choice, UPS SurePost and UPS ground which provide better freight transportation alternatives to its customers during the hectic holiday schedule. The company strongly banks on the rapid growth in e-commerce and expects prolonged holiday shopping for using gift cards, sending return gifts and end-of-the-year sale to result in more freight shipments, translating into higher revenues. Overall, UPS expects peak season daily volume to increase 8% year over year in 2013. For the remainder of the year, the company expects earnings growth to accelerate, representing a rate of 4% to 13%.

UPS, which operates with other carriers like FedEx Corp. (FDX) and Expeditors International of Washington Inc. (EXPD) and Radiant Logistics, Inc. (RLGT), has a Zacks Rank #3 (Hold).

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