UPS Seeing Volume Boost From Refinancing Paper Chase: Freight

UPS Seeing Boost from Refinancing On Record Low Rates
Shipments of air letters in the U.S. may increase at United Parcel Service Inc., as mortgage rates near record lows are boosting refinancing activity. Photographer: David Paul Morris/Bloomberg

A surge in mortgage refinancing to the highest in three years is good for lenders, consumers and the economy. It’s also good for United Parcel Service Inc., which is carrying refinancing documents throughout the country.

As more consumers refinance the mortgages on their homes, expedited letter delivery is benefitting, said Art Hatfield, an analyst in Memphis, Tennessee, with Raymond James & Associates. That’s because the time-sensitive nature of loan approvals leads many lenders to ship documents overnight, he said, calling the business a “good-priced product” for UPS.

“People want to move those documents around quickly, so a lot of next-day delivery occurs in the refinancing process,” Hatfield said. This has a “positive impact” on UPS and should also benefit FedEx Corp., he said.

For Atlanta-based UPS, “an uptick in refinancing applications” was a trend “taking letters from being negative to positive” in the three months ended March 31, Chief Financial Officer Kurt Kuehn said on an April 26 conference call. This was “the first quarter in some time we’ve seen that,” he said.

UPS, the world’s biggest package-delivery company, declined to comment until after second-quarter earnings, which are scheduled to be released July 26. Memphis, Tennessee-based FedEx today said net income for the quarter ending May 31 was $550 million, down 1.4 percent from a year earlier.

The average daily volume for UPS’s next-day air service, which includes both letters and packages, rose 5 percent in the quarter ended March 31 from a year earlier, the biggest increase since 2006. Next-day shipments, which accounted for only 9.2 percent of total U.S. package volume, made up about 19 percent of domestic package revenue, company data show.

Rising Volume

For FedEx, the average daily volume of U.S. overnight envelopes fell 6.7 percent from a year earlier in the three months ended May 31, today’s report showed. These shipments made up about 23 percent of total U.S. domestic deliveries, with revenue per package of $11.81, according to company data.

Hatfield maintains strong-buy recommendations on both UPS and FedEx, primarily because of what he called an attractive pricing environment for these companies as they continue to expand globally.

Refinancing has risen back up to 2009 levels as mortgage rates remain near record lows, said Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association. An index of refinance applications grew 19 percent in the week ended June 8 from the prior period, according to data from the Washington-based group.

More Applications

Favorable interest rates are “the dominant factor” impacting the recent spurt of activity, Fratantoni said. The average 30-year U.S. mortgage rate rose to 3.71 percent in the week ended June 14, up from 3.67 percent the prior week, which was the lowest since Freddie Mac began keeping records.

About 60 percent of this year’s refinance applications will result in new loan originations, Fratantoni estimated. These originations are forecast to total $894 billion this year, up $24 billion from May’s forecast, based on data released last week.

So long as rates remain low, refinancing probably will remain robust and there’s “no question” UPS and FedEx will see a boost as a result, said Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington.

The massive “paper chase” associated with each step of the process, from an application to closing, often requires lenders to send as many as 30 pages of materials via expedited delivery, he said. And last-minute changes to disclosures or interest rates may necessitate even more shipments.

Original Documents

“The refinancing process is so paper-intensive,” said Donnelly, who also is a lender and has used UPS and FedEx to send information to his customers.

Even so, electronic delivery has become a more widely accepted practice, which will cut down on the amount sent by mail, Donnelly said. Still, rules about original documentation vary by state and federal regulations require lenders to send disclosures more frequently now, he added.

“Not everyone has e-mail and some people still want hard copies of these documents,” Donnelly said.

Amid such low interest rates and with refinancing originations projected to surpass those in 2011, more activity is likely in the industry -- and some homeowners are even coming back again, Fratantoni said.

“Anyone with good credit and equity in property has refinanced more than once in the past three years,” he said.

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