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UPS's Service Rates Go Higher

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Leading cargo carrier firm United Parcel Service Inc. (UPS - Free Report) has introduced new service rates for 2013 that will be effective from December 31, 2012.

The new published rates will reflect a 4.5% hike for all UPS Air and U.S. origin international services. Further, the UPS Ground services will now be costlier by 4.9%.

The existing rates have been revised to take into account the effects of higher base rates and reduced fuel surcharges. For the UPS Air and International Services, average base rate went up by 6.5% and is partially adjusted by the 2% dip in fuel surcharge prices.

On the other hand, increase in the UPS Ground service rates underlines a 5.9% jump in average base rate, adjusted by 1% lower Ground fuel surcharge rates.

Atlanta, Georgia based United Parcel also announced a 4.9% hike in its Next Day Air Freight, Second Day Air Freight and Three Day Freight shipment rates within and between the U.S., Canada and Puerto Rico.

We believe that the renewed rates will likely bring in more profits for the company. However, most of the customers will be affected by the inflated rates amidst the prevailing sluggish macroeconomic conditions.

United Parcel – which transports approximately 1.8 million packages each business day globally – reported third quarter 2012 results in late October. The company’s quarterly earnings per share of $1.06 were in line with the Zacks Consensus Estimate. Total revenue for the quarter was $13,071 million, missing our projection of $13,346 million.

For the coming quarters, United Parcel’s profitability level is expected to be boosted by healthy performance in the Supply Chain and Freight segment, strong export volumes in International Package and improved margins in Domestic Package. Other positives for the company include its strong financial position and planned investment strategies.

However, risks such as labor unionization, large European exposure and competitive threats from peers like FedEx Corp. (FDX - Free Report) will likely keep the stock under pressure.

United Parcel currently retains a Zacks #3 Rank, implying a short-term Hold rating for a period of one to three months. We also maintain a long-term Neutral recommendation on the stock.

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