When the Internet first went mainstream, it seemed the post office would thrive. Online shopping would generate enough packages to make up for consumers who would now be communicating via the web.
Nearly two decades later, the impact of the Internet is still being felt. The United States Postal Service (USPS) regularly reports giant-size shortfalls, including almost $16 billion in losses last year. The world is quick to blame competition from private sector providers like United Parcel Service, Inc. (NYSE:UPS) and FedEx Corporation (NYSE:FDX), claiming that most of its business is flowing to them.
But not so fast. Recent earnings reports suggest that online shopping may not be enough to keep shipping companies on top. The poor performance is an indicator that the industrial sector is weak, as well as the fact that consumers are slow to spend freely due to the economy.
United Parcel Service, Inc. (NYSE:UPS) lowered expectations for the rest of 2013 based on reduced second-quarter earnings. The company is set to announce those results in a call later this month, and in preparation reduced its earnings to $1.13 per share.
In its first-quarter report, United Parcel Service, Inc. (NYSE:UPS) reported that income had increased from $970 million to $1.04 billion year-over-year, while revenue had gone from $13.14 billion to $13.43 billion. This period included a fruitful holiday season,with overall package volume increasing 4.4%.
Customers keep it local
One thing United Parcel Service, Inc. (NYSE:UPS) has over competitor FedEx Corporation (NYSE:FDX) is its focus on domestic shipping. FedEx Corporation (NYSE:FDX) has a more international base, doing business all over the globe. When residential and business customers cut costs, the high price of shipping an item overseas may trigger them to try and keep it local.
To help customers save, many businesses are offering in-store pickup of items ordered online. Wal-Mart Stores, Inc. (NYSE:WMT) recently launched a program that allowed customers to order items on the site and pick them up at in-store lockers without waiting in line to pay. The locker system was designed to compete with Amazon, who cut a deal with Staples and 7-Eleven to allow online ordering with in-store pickup.
To further compete with Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores, Inc. (NYSE:WMT) recently implemented a plan to offer local same-day delivery of items purchased on its website. Wal-Mart To Go would utilize United Parcel Service, Inc. (NYSE:UPS) and provide a big boost to the shipping company’s bottom line.