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United Parcel Service is facing a perfect storm of challenges: sticky union-labor costs, tariff and trade volatility, and the reduction of Amazon volume. New U.S. trade agreements have locked in elevated tariffs with certain countries in recent months.
But that additional dose of clarity isn’t enough for companies like the delivery giant, which this week warned that economic visibility was still too poor to provide guidance for the year.
✏️ Chief Financial Officer Brian Dykes talked to my colleague Mark Maurer about tariff impacts for UPS and its corporate customers. Edited excerpts follow.
WSJ: How did you arrive at the decision to not provide full-year guidance?
Dykes: Particularly in the U.S., a large, very important part of our customer base is our small and medium-sized businesses. These are customers where quite frankly we want to help them punch above their weight. What happened with the tariff uncertainty is it's making their ability to both forecast and determine how they're going to manage their peak ordering and demand very, very difficult. When we think about tariffs in general, the direct impact of tariffs for UPS is there's some money there, but it's manageable.
We've got to have a wide range of outcomes that we're trying to manage through. Over the course of the quarter, we will be working with SMB customers and our enterprise retail customers on what that peak forecast and demand profile looks like.
WSJ: Have the recent trade agreements helped provide more visibility than you had three months ago?
Dykes: We actually sit in a very different place. When we were in the second quarter looking at the first tariff expiration, customers already had inventory. You were going through a period in the year where demand is relatively stable. Going through the summer months, you don't get a big peak in demand, particularly for our SMB customer base. What happened over the course of time is that inventory's been bleeding off. If I'm an SMB customer in the U.S. who sources from China under the de minimis threshold, all my orders that I'm facing have a 55% tariff on them. [Editor’s note: The U.S. on Wednesday said it will end the so-called “de minimis” tariff loophole that allows goods under $800 to enter the
country duty-free.]
They're in a very different position now than they were in the second quarter as far as knowing how much inventory I've got, what my demand pattern's going to be, what price I'm going to be able to sell it at.
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