Oct. 23 (Bloomberg) -- United Parcel Service Inc., the world's largest package-delivery company, said third-quarter profit fell 9.9 percent and that ``significant slowing'' in the economy will keep 2008 earnings at the low end of its forecast.

Net income was $970 million, or 96 cents, beating analysts' estimates by 7 cents. Revenue rose 7.4 percent to $13.1 billion on gains in international shipping and logistics services, the Atlanta-based company said in a statement.

UPS's fuel surcharge for air shipments rose to a record 35 percent in the quarter, causing those volumes to fall 9.8 percent as customers switched to cheaper ground options. Demand for sending items ranging from mortgage documents to consumer goods weakened in what UPS said was a ``substantially worse'' environment than anticipated.

``We all knew the economy was going to be bad, and that a company like UPS would bleed because of it,'' said Dan Ortwerth, an Edward Jones & Co. analyst in St. Louis, who recommends buying UPS shares. ``This is a classic story of a company with a diverse base and offerings managing through it.''

Analysts expected earnings of 89 cents a share, the average of 17 estimates complied by Bloomberg. Year-ago profit was $1.08 billion, or $1.02 a share.

UPS climbed $1.74, or 3.8 percent, to $48.13 at 4 p.m. in New York Stock Exchange composite trading. The shares have dropped 32 percent this year, compared with 33 percent for competitor FedEx Corp.

Volumes Fell

UPS said 2008 earnings will be toward ``the lower end'' of its July forecast of $3.50 to $3.70. Analysts surveyed by Bloomberg estimated $3.56.

The economic environment ``proved substantially worse than we initially anticipated, with significant slowing toward the end of the quarter,'' Chief Financial Officer Kurt Kuehn said in the statement.

UPS said domestic next-day air shipments, which are among its most profitable offerings, fell 9.8 percent in the third quarter for the third straight decline. Average daily U.S. volume, which typically performs at or better than U.S. gross domestic product, dropped 3.4 percent.

Domestic volume would probably fall about 4 percent in the fourth quarter, with the peak Christmas season in late December being ``flat at best,'' Kuehn said in a telephone interview.

UPS plans to reserve ``the low end'' of the 30 to 40 extra jets it typically books for the Christmas rush, Kuehn said.

DHL Deal

The company plans to fill extra space in its jets by taking over U.S. air shipments for Deutsche Post AG's unprofitable DHL unit. DHL said in May it would close some sorting facilities and end some routes as part of a retrenchment that includes having UPS handle its U.S. air shipments.

At the time, UPS said the tentative 10-year agreement would generate as much as $1 billion a year in revenue. Today, UPS said the ``size and scope'' of the accord may change, without providing more detail.

DHL's U.S. volumes have dropped by about a third over the past year, to 1.4 million packages a day from 2 million, according to Satish Jindel, president of SJ Consulting Group Inc. in Sewickley, Pennsylvania.

DHL spokesman Jonathan Baker said in an e-mail on Oct. 20 that the company doesn't report country-specific volumes and declined to comment on those figures other than to say that ``volume in the industry as a whole is down.''

UPS controls about 51 percent of the U.S. package-delivery market, followed by FedEx with 31 percent, according to SJ Consulting. The U.S. Postal Service has a market share of about 13 percent, and DHL has a share of 5 percent.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net.

Last Updated: October 23, 2008 16:21 EDT