Growing Asian Demand Drives UPS Int’l Shipments & $83 Value
The international export market is significant for UPS (NYSE:UPS) which saw its international package volumes grow 4.6% year-on-year in Q3 2011 while the U.S. package volumes remained flat. Thanks to global growth and supply chain upgrades, UPS reported a 5% increase in its net income to over $1 billion in its latest quarterly results. (Read UPS Global Growth, Supply Chain Upgrades Support $84 Value) We expect UPS’ international export package shipments will increase, going forward, as the economy improves gradually and as international package volumes expand, particularly in Asia. Its main competitors include FedEx Corp. (NYSE:FDX) and the national postal service, the United States Postal Service (USPS).
See our full analysis for UPS stock
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UPS’ cargo revenues increased in 2010 as the U.S. and the world economy started recovering from the economic recession. The trend is expected to continue in the future as strong economic conditions and lower trade barriers between countries will help boost UPS’ revenues. Moreover, the international market is expected to grow 5-6% annually in coming years at nearly twice the rate of the global GDP.
Asia is a Key Growth Driver
According to research by Procurement Intelligence Unit, the Asian logistics market will overtake North America’s in 2013 and that Asia’s share of the global transport and warehousing sector will increase from 18% in 2010 to 21% by 2013. The report also points out that the Asia-Pacific region, which has recovered more quickly compared to other regions from the impact of global recession, will grow at 10% reaching $471 billion by 2013. [1]
UPS is well placed to leverage the growing Asian demand. It has more than two dozen alliances with Asian delivery companies that supplement company-owned operations. These alliances help it service more than 40 Asia- Pacific countries and territories. UPS has also been increasing its air service between U.S. and Asian countries such as China and Korea.
Last year, it opened a new Intra-Asia air hub at Shenzhen Baoan International Airport in China’s thriving Pearl River Delta. The company has made an investment of $180 million in the hub and has reduced shipment time-in-transit by at least a day for customers in the region. [2]
While we estimate UPS’s total international export package shipments will increase from 251.6 million in 2012 to 324.5 million by the end of our forecast period, Trefis members project an increase from 265 million to 359 million during the same period.
We currently have a Trefis price estimate of $83.60 for UPS’s stock, about 20% above the current market price.
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Notes:- Asian logistic sector to become driver for global growth, PIU, Sept 2, 2010 [↩]
- UPS Operating Shenzhen Hub, Worldport Expansion Finished, April 10, 2010 [↩]