UPS Chief Davis Sees Holiday Volume Up 7.5% as Shipper Adds China Flights

United Parcel Service Inc. expects to handle 430 million packages globally between Thanksgiving and Christmas and has added flights in China to meet surging export demand, Chief Executive Officer Scott Davis said.

The projected volume for the peak holiday season marks a 7.5 percent increase from a year earlier, when the world’s largest package-delivery company had one fewer shipping day. Retailers surveyed by UPS anticipate holiday sales rising about 3 percent, Davis said today in a Bloomberg Television interview.

“Our customers are cautiously optimistic,” Davis said. “It doesn’t sound great, but last year we were flat, and the year before that we were minus 4 percent.”

More consumers are buying gifts in the final seven or eight days before Christmas, breaking from historical patterns of about a month in advance, he said. That means UPS won’t know until a few weeks before the holiday whether retailers will need fresh express shipments of electronics such as Apple Inc.’s iPads, iPhones and laptop computers, Davis said at Bloomberg’s headquarters in New York.

Retailers are keeping inventory lean because it’s difficult to predict whether customers will accelerate purchases at the last minute, said Davis, 58. UPS presumes the pace of shipments is “going to stay roughly where it is,” he said.

Hong Kong, Shanghai

UPS has added flights in Hong Kong and Shanghai to take advantage of a jump in exports from China, and it has about 30 aircraft leased for the holiday season, the same as last year, Davis said. Exports from Asia jumped 34 percent in the third quarter, Atlanta-based UPS said yesterday.

UPS has the flexibility to add flights and lease more planes if needed, Chief Financial Officer Kurt Kuehn said.

“Retailers this year, some of them shipped very early to take advantage of ocean,” Kuehn said. “A lot have kept inventories light because they didn’t want to commit. That’s when you have to use air. If you have the newest gadget but aren’t sure if it’s going to be upstaged before December, you have to spend a few extra bucks” to send it by air.

This puts UPS in a “staging period” now, Kuehn said. “It could be a very busy air season with goods coming over from Asia at the last minute, or it could be steady as she goes.”

Average daily volume in the fourth quarter probably will increase about 1.5 percent to 2 percent, muted in part by the extra operating day this year, UPS forecast yesterday.

Currency ‘Extremes’

UPS will keep using so-called price collars to “minimize wild extremes” in foreign-exchange fluctuations, Kuehn said. About half of UPS’s non-U.S. revenue is denominated in euros, the most of any currency.

The euro weakened 15 percent against the dollar in 2010’s first half, then rebounded 11 percent in the third quarter and has strengthened 2.1 percent this quarter through yesterday. UPS has a rolling hedge program that stretches out about a year, Kuehn said.

“It’s a little bit of a headwind now,” he said. “The goal is so it’s not the headline” in any discussion of UPS’s financial performance, he said.

Davis said his top priority for U.S. policy is continued loosening of trade rules to help create jobs and speed the economic recovery. President Barack Obama and U.S. Treasury Secretary Timothy Geithner “are listening” on the topic, said Davis, who sits on the President’s Export Council.

UPS rose 24 cents to $69.83 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 22 percent this year.

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

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net.

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