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Weathering Parcel Delivery; Celadon Settles; Amazon's Prime Push
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Today's newsletter was written by WSJ Logistics Report's Jennifer Smith.
Stormy weather and surging e-commerce volumes are casting a shadow over United Parcel Service Inc. The parcel-delivery giant posted a 17% drop in first-quarter profit, the WSJ’s Paul Ziobro reports, as $80 million in winter-weather expenses added to margin pressure from a multibillion-dollar network upgrade. UPS’s challenges highlight the strains that delivery firms face as growing online sales push more parcels through logistics networks. The company is adding capacity and automating its hubs to control costs. It’s also chasing more business-to-business shipments, which tend to be more profitable than delivering packages to homes. UPS’s freight and supply chain division delivered a 17.6% jump in profit
despite a nearly 4% revenue decline. But the parcel carrier warned that capacity expansions in the second quarter will trigger startup costs, and it doesn’t expect broader earnings growth until the back half of the year.
A failed bet on the truck-leasing market is coming back to haunt Celadon Group Inc. The Indiana-based trucker agreed to pay $42.2 million to settle fraud claims after reporting inflated profits and falsifying books to hide losses from its aging leasing fleet, the WSJ’s Aisha Al-Muslim reports. Celadon is one of the largest North American truckload carriers and got into difficulty when the trucking market slowed in 2016 after the company made a series of rapid expansions, including bulking up its former Quality Companies subsidiary’s leasing fleet to more than 11,000 vehicles. A glut of used equipment during the downturn left many fleets owing more on trucks than they were worth. Federal prosecutors say Quality inflated the value of more than 1,000 vehicles. Celadon has since replaced its executive team and says it is implementing internal controls and cooperating with the ongoing probe.
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A worker loads packages onto a cart at UPS’s Utah Regional Hub in Salt Lake City./BLOOMBERG NEWS
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Amazon.com Inc. is trying to throttle back growth in shipping costs ahead of a big investment to speed up delivery. The online retail colossus logged $3.56 billion in profit in the first quarter, the WSJ’s Yoree Koh reports, but expenses are expected to jump as it spends $800 million to make one-day shipping the standard for Prime members instead of two days. Revenue growth slowed for the fourth straight quarter and Amazon appears to be increasingly reliant on services and third-party sellers, with more than half the sales on its online platform coming from a cut of those outside businesses. Sales at physical stores such as Whole Foods were essentially flat. World-wide shipping costs increased by 21% from last
year, compared to the 38% jump between the first quarters of 2017 and 2018, as the company works to lower transportation expenses by handling more logistics in-house.
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Walmart Inc. is quite literally beefing up its meat supply chain. The retailer is developing a network of cattle ranches and meat processing plants focused on Angus beef cuts, the WSJ’s Jacob Bunge and Micah Maidenberg write, the latest push by a big chain to gain more control over food pricing and supply. Rival Costco Wholesale Corp. is making similar inroads into poultry farming and processing, and Walmart last year opened up a milk-processing plant supplying more than 600 stores. Consumers are increasingly seeking transparency on how their food is produced, and Walmart says its moves provide greater supply-chain visibility. It also presents a risk to suppliers like Dean Foods Co., which lost some 100
million gallons of annual milk sales as a result of the Walmart plant. Big meat producers could lose leverage on supply deals, though Tyson Foods Inc. and Pilgrim’s Pride Corp. say such expansions don’t threaten their businesses.
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“While we continue to focus on servicing their needs, there is so much more to e-commerce than Amazon.”
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— UPS Chief Executive David Abney.
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9.4%
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Annual increase in revenue per loaded mile at Knight-Swift Transportation Holdings Inc. in the first quarter.
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