UPS, FedEx And The Holiday Season Risks

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The e-commerce industry has really picked up in the past few years. With increasing internet connectivity and many new companies entering the space, online sales are at an all-time high. In 2013, almost 41% of the world’s internet users purchased products online. The size of the market is increasing every year in double digits and could continue to do so for the foreseeable future. To put this into perspective, the current size of the e-commerce industry is $1.6 trillion (which represents growth of about 20.4% year-over-year) and accounts for only 6.6% of total retail sales worldwide ($24 trillion). With the emergence of cost-effective smartphones, and cheaper, more widespread internet access, the potential for growth in the sector remains immense.

A positive effect of the e-commerce boom is that ancillary industries such as the courier services and delivery sectors, should see corresponding growth. Package volumes could increase consistently year-over-year, especially during the holiday season spanning November through December. Intuitively, higher package volumes should mean higher revenues for courier companies such as FedEx and UPS . However, this may not necessarily be true if delivery companies fail to cope with heavy increases in volumes, which could result in major setbacks. Accordingly, while the holiday season represents a big opportunity for the courier companies, it also represents a substantial risk.

In 2013, UPS and FedEx underestimated the volumes to be expected during the holiday season, and as a result both companies were somewhat underprepared. Heavy snowfall and harsh winter conditions slowed them down further. Since then, both companies have carried out a wide variety of changes across the board. The companies have invested heavily in technology to increase delivery efficiency, while upgrading their sorting facilities. Several hubs across the globe have been renovated to ensure the highest productivity. UPS and FedEx have also decided to hire a larger number of seasonal workers – drivers, sorters and other support positions – during peak periods to enable smooth functioning.

In response to these challenges, UPS has invested heavily in its technology. The company recently acquired Chicago-based Coyote Logistics for $1.8 billion. Coyote Logistics will provide UPS with the technology to ensure that there are no empty spaces on the company’s delivery trucks. This will allow the space on trucks to be utilized in the most efficient manner. The company has also increased the number of trucks equipped with the ORION technology in the U.S. ORION helps drivers find the fastest and most fuel-efficient ways to deliver packages. Almost 70% of the company’s trucks in the U.S. are now equipped with the technology. Apart from this, UPS has also invested heavily in Europe, increasing the number of trucks available while upgrading its sorting and automation facilities.

Earlier in the year, both FedEx and UPS introduced dimensional weight pricing, which essentially takes into account both weight and volume (length, breadth and height) of a package. This practice ensures that customers optimize their packaging in an attempt to save costs. Recently, UPS also decided to introduce a surcharge on large packages. Both changes in pricing policies should allow trucks to be filled to their highest capacities, allowing larger volumes to be moved.

A problem that both companies are facing is the difficulty in predicting e-commerce trends during the holiday season. In Q4 2014, UPS invested more than was required for the period, which had an impact on the company’s financials. While both companies stand to benefit greatly from the increased volumes, FedEx and UPS need to find the right balance to be able to make the most of the e-commerce boom.

http://www.forbes.com/sites/greatspeculations/2015/11/20/ups-fedex-and-the-holiday-season-risks/?utm_source=followingweekly&utm_medium=email&utm_campaign=20151123

Walmart Promises Not To Run Out Of Top Items Like TVs This Black Friday

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With Black Friday a mere two weeks away, Walmart has announced its game plan for the most anticipated shopping day of the year.

The world’s biggest retailer has mined sales data from years past and stocked its stores with extra inventory on hot items.

Walmart wants to ensure that the intrepid bargain-hunters who line up for doorbuster deals hours before its 6 p.m. Thanksgiving Day opening don’t leave disappointed.

“Walmart will never be the retailer that broadcasts a great price on Black Friday and then ends up only having a few in stock,” said chief merchandising officer Steve Bratspies. “We bought deep on televisions, toys and more to ensure hundreds of customers in a store – not tens of customers – get the gift they want.”

Walmart will have more than 1 million TVs, 15 million movies and 10 million pajamas in stock for its Black Friday sale.

Among its best deals, per its Black Friday ad released on Thursday: a Roku 32” Class Smart HDTV for $125, popular wearable fitness tracker the Fitbit Flex Wristband for $59, and video game console package deals including a PlayStation 4 Uncharted bundle for $299.

The big-box retailer is bringing back its one-hour guarantee on a handful of its most-coveted products, including Beats Studio Headphones ($169) and a 16GB iPad Air 2 Gold ($399). Even if a store runs out, as long as a shopper buys the item between 6pm and 7pm on Thanksgiving Day, Walmart guarantees they’ll receive it by Christmas.

The Bentonville, Ark-based chain will be making most of its deals available on Walmart.com at 12:01 a.m. PST on Thanksgiving Day, meaning online shoppers can get a jump on their holiday lists before the turkey is even in the oven.

http://www.forbes.com/sites/clareoconnor/2015/11/12/walmart-promises-not-to-run-out-of-top-items-like-tvs-this-black-friday/

Fast Food Workers Plan Tuesday Strikes In 270 Cities, Vow To Take $15 Wage To Voting Booth

http://www.forbes.com/sites/clareoconnor/2015/11/09/fast-food-workers-plan-tuesday-strikes-in-270-cities-vow-to-take-15-wage-to-voting-booth/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20151109

On Tuesday, November 10th — exactly a year before Election Day — fast-food and other low-wage workers will walk off the job in 270 cities and towns across the country as part of a push for a nationwide $15 minimum wage.

These strikes will take place across battleground states like Ohio, Florida and Virginia, as well as in cities like New York, where workers recently won a new $15 hourly wage but will protest in solidarity.

Fast-food employees will be joined by workers from other industries that typically pay low hourly wages, including home care, child care, residential care, maintenance, and security. Adjunct professors — who make, on average, around $31,000 annually — will also be on hand.

Elected leaders, clergy allies, Black Lives Matter activists, immigration advocates and members of women’s groups will all be present at various walkouts and rallies across the U.S, according to Fight for $15, the union-supported group behind this movement.

The day of action comes as the issue of minimum wage takes center stage in the run up to the 2016 presidential election. Fight for $15 notes that all three major Democratic candidates support higher pay for low-wage workers. Hillary Clinton has, however, stopped short of endorsing a $15 federal minimum wage, instead calling for a hike to $12.

The federal minimum wage is at present $7.25 an hour. A recent report by the Alliance for a Just Society found that Americans on average have to earn $16.97 an hour to make a living wage — that is, to pay for housing, utilities, and childcare while putting a modest amount of savings away for emergencies.

As workers get set to push for a pay boost, Republican presidential candidates have been voicing opposition to a federal minimum wage. Carly Fiorina described the federal government’s role in setting a minimum wage as unconstitutional in the most recent GOP debate.

As MSNBC noted, fellow mainstream Republican candidates Marco Rubio and Jeb Bush have also opposed a federal minimum, although not as strongly as the former Hewlett-Packard HPQ -7.69% CEO.

There are millions of votes at stake in this battle, given that approximately 42% of the U.S. workforce makes less than $15 an hour. A recent study of workers making less than that sum commissioned by the National Employment Law Project found that 69% of unregistered voters would register to vote in support of a candidate backing a $15 federal minimum wage and union rights.

http://www.forbes.com/sites/clareoconnor/2015/11/09/fast-food-workers-plan-tuesday-strikes-in-270-cities-vow-to-take-15-wage-to-voting-booth/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20151109

Volkswagen Sinks Deeper Into The Mire

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Since the emissions scandal broke in September 2015, Volkswagen (VW) has delivered three things: a third-quarter loss, a new CEO and an investigation into the “rogue coders” who supposedly fitted cheat software on up to 11m vehicles worldwide. None of these are satisfactory.

The third-quarter loss is due to provisions of 6.7bn Euros against anticipated fines, alteration costs for the 11m vehicles, and compensation for customers whose vehicles will, as a result of those alterations, have poorer fuel economy and diminished performance. Most analysts think the provisions will be nowhere near enough: estimates of the final cost for Volkswagen vary from 15bn to 25bn Euros. And this is without taking into account consequential losses for customers, over which Volkswagen may face lawsuits: the second-hand value of Volkswagen automobiles is already falling sharply. Volkswagen’s third quarter results were bad, but future results may well be far worse.

The new CEO, Matthias Mueller, was formerly the boss of Porsche, VW’s premier high-performance brand. Appointing an insider to replace a CEO who has stepped down due to a major scandal is hardly indicative of a major change in management and culture, which is what VW really needs: it would have been far better if the new CEO had come from elsewhere.

But there is now a more serious shadow over Mr. Mueller. On November 2nd, the US’s Environmental Protection Agency (EPA) notified Volkswagen of a second breach of clean air legislation (my emphasis):

Today, EPA is issuing a second notice of violation (NOV) of the Clean Air Act (CAA) to Volkswagen AG, Audi AG and Volkswagen Group of America, Inc. This NOV is also being issued to Porsche AG and Porsche Cars North America. These five companies are collectively referred to as Volkswagen (VW). The NOV alleges that VW developed and installed a defeat device in certain VW, Audi and Porsche light duty diesel vehicles equipped with 3.0 liter engines for model years (MY) 2014 through 2016 that increases emissions of nitrogen oxide (NOx) up to nine times EPA’s standard. The vehicles covered by today’s NOV are the diesel versions of: the 2014 VW Touareg, the 2015 Porsche Cayenne, and the 2016 Audi A6 Quattro, A7 Quattro, A8, A8L, and Q5.

So this time, the luxury VW brands are affected. Including Mr. Mueller’s Porsche. Oh dear.

In a statement, VW emphatically denied that it fitted “cheat software” to its luxury brand. But it also attempted to tone down the severity of the EPA’s charge. VW described the alleged violation thus:

The United States Environmental Protection Agency (EPA) informed Volkswagen Aktiengesellschaft on Monday that vehicles with V6 TDI engines had a software function which had not been adequately described in the application process.

Somehow, “developed and installed a defeat device” became “not adequately described in the application process”. So VW’s defense amounts to “We didn’t do it, and anyway it wasn’t a crime”.  I can’t see this going down well with US regulators. This is a very poor start for the new CEO.

And things have since gotten a lot worse. After the EPA’s first violation notice, VW’s Board announced an investigation to establish whether there were other “irregularities” in relation to emissions testing for VW vehicles. And yes, it seems there are. On November 3rd, VW admitted that “unexplained inconsistencies” had been found in the testing process for CO2 emissions.

What VW seems to have done is understated CO2 emissions data for some of its brands, enabling it to make unrealistic (and therefore misleading) fuel economy claims:

Under the ongoing review of all processes and workflows in connection with diesel engines it was established that the CO2 levels and thus the fuel consumption figures for some models were set too low during the CO2 certification process.

VW says about 800,000 vehicles are currently thought to be involved, mostly in Europe. But the question that immediately springs to mind is – why are only some brands affected? Why overstate fuel economy figures for some models but not others? This doesn’t seem likely. It’s worth remembering that the NOx emissions scandal originally involved less than 500,000 vehicles and was limited to the US: the figure is now 11m worldwide. This, too, could quickly spiral. And importantly, some of the vehicles involved this time have petrol engines. The scale of this scandal could be much, much bigger.

I suppose the claim that only some brands are affected might support VW’s argument that the emissions scandal is entirely caused by a small number of software engineers. But that argument was already hard to swallow, and is now frankly incredible. No way is this a “rogue coder” incident. This is systematic rigging of emissions test data to give VW an unfair (and illegal) competitive advantage over its rivals.

And it is tax fraud, too. A number of countries give discounts on vehicle tax for vehicles with low CO2 emissions. So some of VW’s customers have unwittingly paid a lower vehicle tax than was actually due. They are now liable for the unpaid tax, and could in theory face prosecution. According to the Wall Street Journal, the German government has pressured VW into offering to pay the additional tax bills:

Volkswagen Chief Executive Matthias Müller asked EU finance minister to ensure that their national tax authorities “charge Volkswagen directly, and not our customers, for any additional taxes.”

VW estimates that this latest scandal will cost it around 2bn Euros. This is in addition to its estimate of 6.7bn Euros for the NOx emissions scandal. Neither figure seems likely to be remotely adequate. VW faces far larger bills once litigation costs and compensation are taken into account.

VW has now been downgraded by the credit ratings agencies Moody’s and S&P, and all three major ratings agencies have it on negative watch for further downgrades. Moody’s, discussing the latest revelations, goes to the heart of the matter:

These new developments pose additional risk to Volkswagen’s reputation, future sales and cash. They also suggest serious internal control and governance issues, which may be more widely spread than believed initially, that Volkswagen will have to address aggressively in the coming months.

The scandal is already beginning to affect sales of VW vehicles. In the UK, sales in October were down 9.84% year-on-year across all models, including petrol engines – a huge drop. Further falls seem likely, and sales in other countries are falling as well. Toyota has now overtaken VW as the largest car manufacturer in the world by sales.

Unsurprisingly, VW’s share price – already down by a third due to the NOx emissions scandal – tanked again when the CO2 emissions news broke. VW is still financially strong, but to regain the confidence of customers and investors it will have to make far more radical changes to its management, governance and culture than have been evident so far.

http://www.forbes.com/sites/francescoppola/2015/11/07/volkswagen-sinks-deeper-into-the-mire/?utm_source=followingimmediate&utm_medium=email&utm_campaign=20151107