Leveraging Pricing Power: UPS and FedEx Amid Competitive Pressures

Current pricing strategies of UPS and FedEx

UPS is enhancing its pricing strategies by transitioning to a more scientific approach, utilizing new tools for better pricing architecture. Meanwhile, FedEx is successfully capturing pricing opportunities in the current environment, focusing on revenue quality and efficiency improvements to bolster its pricing power.

"You noted you're pleased by the pricing capture that you've been able to achieve as noted in light of the current pricing environment." --- (FDX, earning call, 2024/Q4)

"That being said we also have an opportunity to price -- moving from the art of pricing to the science of pricing through the new tools that we have been talking to you about. Pricing architecture of the future gives us the opportunity to use modifiers and price that creates opportunities for value for our customers, as well as value for ourselves." --- (UPS, earning call, 2024/Q2)

"We expect another $2 billion to follow from Network 2.0. Our Tricolor strategy will improve the efficiency and asset utilization of the entire FedEx system." --- (FDX, earning call, 2024/Q2)

"We continue to execute on pricing and revenue quality initiatives within our strategy, and anticipate revenue per piece will remain relatively flat in the second quarter before returning to growth during the second half of 2024." --- (UPS, sec filing, 2024/Q1)

"With the recent completion of the FY25 planning process, FedEx has turned its focus to the next phase of its long-term stockholder value-creation plans." --- (FDX, press release, 2024/06/25)

Competitive landscape and customer demand trends

The competitive landscape for UPS and FedEx is shaped by evolving customer demand trends, including a focus on faster delivery and pricing strategies. UPS is adapting through rate increases despite flat volumes, while FedEx faces challenges with reduced yields. Amazon emphasizes low prices to attract customers in a competitive environment.

"Faster delivery times have another important effect. As we get items to customers this fast, customers choose Amazon to fulfill their shopping needs more frequently, and we can see the results in various areas, including how fast our Everyday Essentials business is growing and the continued increase in Prime member purchase frequency and total spend with us." --- (AMZN, earning call, 2024/Q1)

"We expect these trends will continue in the second half of the year. Revenue in mail services remained relatively flat for both the quarter and year to date as decreases in volume were partially offset by rate increases and a favorable shift in product characteristics." --- (UPS, sec filing, 2024/Q2)

"In addition, international export composite package yield decreased 5% in 2024 driven by reduced demand surcharges, a larger mix of e-commerce volume, and an increase in lower-yielding deferred volume related to the full reopening of the international economy service." --- (FDX, sec filing, 2024/Q4)

"We remain focused on making sure we're offering everyday low prices, which we know is even more important to our customers in this uncertain economic environment." --- (AMZN, earning call, 2024/Q1)

"This solution provides a significant competitive advantage to us and to our customers." --- (UPS, earning call, 2024/Q2)

Operational efficiencies and cost management

Operational efficiencies and cost management are critical for UPS, FedEx, and other logistics companies. UPS noted lower fuel costs aiding expense reduction, while FedEx targets $4 billion in cost cuts. ODFL emphasized yield management and operational efficiencies as key to improving profitability, showcasing a collective focus on strategic cost management.

"We were pleased, however, that the improvement in yield and ongoing focus on operating efficiencies helped us improve our direct operating cost as a percent of revenue by approximately 100 basis points." --- (ODFL, earning call, 2024/Q1)

"And lastly, lower fuel costs contributed to the decrease in total expense. The U.S. domestic segment delivered $839 million in operating profit, down 43.6% compared to the first quarter of 2023, and operating margin was 5.9%." --- (UPS, earning call, 2024/Q1)

"This is a high return use of capital that allows us in-source linehaul transportation, drive operational efficiencies, and improve customer service levels." --- (XPO, earning call, 2024/Q2)

"And this is a clear sign that our efforts are working. Our target is a combined $4,000,000,000 in cost reductions in fiscal year 2024." --- (FDX, conference, 2024/05/29)

"We believe the continued execution of this yield-management philosophy, continued increases in density, and ongoing improvements in operating efficiencies are the key components of our ability to produce further improvement in our operating ratio and long-term profitable growth." --- (ODFL, sec filing, 2024/Q2)

Impact of technology on pricing strategies

Technology is enhancing pricing strategies for UPS and FedEx by improving cost efficiencies and operational capabilities. UPS emphasizes "all-in pricing" to navigate competitive pressures, while FedEx notes a return to a normal pricing environment, indicating that technological advancements are crucial for maintaining competitive pricing.

"And do you still feel as sort of a lever in terms of all-in pricing? Then for Brian, maybe you can elaborate on the pension contribution strategy." --- (UPS, earning call, 2024/Q1)

"And I'd say it's back to kind of a normal pricing environment in a competitive market." --- (FDX, conference, 2024/05/13)

"incentive for our sellers to inbound into locations that allow us to be more cost following and allow both our sellers and us to enjoy in those cost savings when we're able to do so." --- (AMZN, earning call, 2024/Q1)

"So we're continuing to see strong improvements in cost to serve as well as improvement in speed, added selection, better safety." --- (AMZN, earning call, 2024/Q2)

"The increase in fulfillment costs in Q2 2024 and for the six months ended June 30, 2024 compared to the comparable prior year periods, is primarily due to increased sales and investments in our fulfillment network, partially offset by fulfillment network efficiencies." --- (AMZN, sec filing, 2024/Q2)

Future outlook for pricing power in logistics

UPS anticipates a strong future for pricing power, driven by volume growth and demand surcharges, despite current challenges from market rate declines. Their strategic focus on becoming a premium logistics provider suggests potential for improved pricing strategies amid competitive pressures.

"Year to date, expense decreased $59 million as the impact of volume declines and lower market rates across our forwarding businesses more than offset increases in our logistics businesses." --- (UPS, sec filing, 2024/Q2)

"Logistics drove the overall increase in segment expense for both periods, partially offset by lower purchased transportation in Forwarding in both periods." --- (UPS, sec filing, 2024/Q2)

"And lastly, we expect a strong peak driven by volume growth and demand surcharges. Within the International segment, our full year and second half outlook remains consistent with what we provided at the beginning of the year." --- (UPS, earning call, 2024/Q2)

"In Supply Chain Solutions, revenue decreases were driven by volume and market rate declines in Forwarding, somewhat offset by growth in our Logistics businesses." --- (UPS, sec filing, 2024/Q1)

"We are making bold moves as we pursue our declarations to become the premium small package provider and logistics partner in the world.I'll leave you today with a quote from our founder, Jim Casey." --- (UPS, event transcript, 2024/05/02)

Key challenges in maintaining pricing power

Key challenges in maintaining pricing power include the need for continuous service improvement and disciplined pricing strategies. Companies like XPO and CHRW emphasize capturing pricing opportunities through enhanced service and operational discipline, while ODFL notes stability in the pricing environment despite competitive pressures.

"Even with the gains we've made, we still have a significant pricing opportunity that we can capture over time through 3 distinct levers: by improving our service, growing our accessorial business and expanding our local customer base." --- (XPO, earning call, 2024/Q1)

"As we think about how we'll continue to do that forward, we still have opportunities to continue to improve as we implement our disciplined pricing strategy throughout the business." --- (CHRW, earning call, 2024/Q2)

"So that will continue to be the initiative. I don't see anything changing with respect to the pricing environment and nothing changing that we've seen as we've gone through renewals and bids and so forth with respect to the other carriers in the industry." --- (ODFL, earning call, 2024/Q1)

"Our service product is improving, and customers are rewarding us with higher pricing." --- (XPO, earning call, 2024/Q1)

"We'll optimize our gross profit by monitoring key input metrics and responding faster to error states and changing market conditions with countermeasures and innovative technology that improves our execution.As we take action on all of these fronts, I'm excited about the work that we're doing to reinvigorate Robinson's winning culture and to instill discipline with our new operating model, removing with greater clock speed and urgency to seize opportunities and solve problems in order to win now and to be ready for the eventual freight market rebound." --- (CHRW, earning call, 2024/Q2)