UPS Joins FedEx in Adding Asia Flights as Economic Recovery Stokes Demand
United Parcel Service Inc. (UPS) is adding four flights a week from Hong Kong to Europe and FedEx Corp. (FDX) will start a new nonstop route to South Korea as growth in Asian shipping demand outpaces expansion in the U.S.
Asia is “a growth market and they need to keep adding capacity and speed,” said David Campbell, an analyst with Thompson Davis & Co., in Richmond, Virginia. “If they have more direct service, they’re going to get more traffic because it’s easier for the customers there to use them.”
UPS will fly Boeing Co. (BA) 747-400 jumbo jets allowing it to deliver from Hong Kong to European cities including Paris and Milan in one day, a full day faster than previously, the Atlanta-based company said. FedEx’s route between its hometown hub of Memphis, Tennessee, and Seoul will use a Boeing 777.
The services underscore Asia’s importance to UPS and FedEx even as Japan, the world’s third-biggest economy, struggles with the aftermath of the March 11 earthquake, tsunami and radiation leaks. UPS is the world’s largest package-shipping company, and FedEx operates the biggest cargo airline.
About 27 percent of UPS’s revenue came from international markets last year, and volume on international packages jumped almost 14 percent, or about 7 times as much as domestic deliveries. U.S. exports to South Korea rose 35 percent to $38.8 billion in 2010, FedEx said, citing U.S. Census Bureau figures.
Air Cargo Shares
UPS rose $1.48, or 2.1 percent, to $73.52 at 4 p.m. in New York Stock Exchange composite trading, the most since Feb. 1. FedEx added $2.74, or 3 percent, to $93.02. Campbell recommends buying shares of both companies. UPS and FedEx each have 21 buy ratings from analysts and 8 holds, according to data compiled by Bloomberg.
UPS climbed 27 percent last year, while FedEx gained 11 percent amid consistent quarterly profit gains. Both companies’ overseas sales climbed more than 20 percent in their past five fiscal years.
“The international share of the companies’ revenues will continue to increase,” Campbell said in a telephone interview.
FedEx’s new route, which will operate four flights a week using Boeing’s 777 freighter, lets it ship packages from the U.S., Canada and some Latin American countries to Seoul in two to three business days, the company said in a statement.
UPS added the Hong Kong flights at the behest of technology, health-care, auto parts and high-end retail customers, Dan Brutto, president of UPS International, said in a telephone interview.
Hong Kong’s Growth
“Their word to us was it would be nice if there was a one- day service going out of Hong Kong,” Brutto said. “It’s all premium products, from many different industries and different- sized customers. The first flight is 100 percent full.”
UPS’s 747 jets depart Hong Kong and land at its European air hub in Cologne, Germany, just before midnight, then must be unloaded in two hours in order to get overnight packages sorted and put onto new flights to other European cities, Brutto said.
The planes make stops in Warsaw, Dubai and Mumbai to pick up additional packages on the way back to Hong Kong, he said.
“The Europe volume back to Asia is growing very nicely, much of it driven by German exports, the auto industry, high-end machinery, tool and die manufacturers,” Brutto said. “When the flights get to Hong Kong, they will be close to 100 percent full.”
UPS has been studying the additional Hong Kong flights for about six months, he said. Hong Kong last year surpassed FedEx’s hometown hub of Memphis as the world’s busiest airport for cargo, according to data released by the airports.
“Another city that is interesting is Shanghai, and we’ll continue to look at that,” Brutto said. Shanghai’s Pudong airport is the world’s third-busiest for cargo.
UPS’s operations in Japan are “getting better every day” and the company is able to reach more postal codes in the worst- hit areas in the northeast, Brutto said. Only three prefectures are still closed, from eight initially, and pickups and deliveries in the rest of the country are “almost back to normal” while major cities including Tokyo had minimal disruptions, he said.
“For our business, it’s not going to have a major impact,” Brutto said.
UPS flew 55 pallets of relief supplies to Japan today for the American Red Cross, he said.
UPS has 527 aircraft and opened a $180 million hub in China in 2010, according to a regulatory filing. FedEx has 697 planes, according to its website.
UPS’s revenue rose 9 percent last year to $49.5 billion and its profit jumped by more than 50 percent to $3.49 billion as demand rose with the strengthening global economy. FedEx’s revenue for the year ending in May is projected to increase 12 percent to $39.1 billion with a 24 percent gain in net income, to $1.47 billion.
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