UPS, FedEx, and USPS face rush returns during the holidays. Here is what it means.

As the calendar has finally turned, not much has changed. The Covid-19 pandemic remains a very real threat, but one that has barely curbed consumer appetite. One real change, however, is that the millions of packages that go through the post are now, in many cases, returns – moving in the opposite direction and returning to retailers. It means a continuous precipitation for delivery giants, such as

UPS

and FedEx.

January rush makes it feel like it deserves its own name, so Barron nicknamed him “Return-a-palooza”.

And after record online sales around the holidays, how businesses handle a flood of returns will say a lot about the state of e-commerce infrastructure and logistics, and the ability of e-commerce-related inventory to continue operating in 2021.

The increase in free shipping – for both purchases and returns – at many retailers, along with the ease of dropping off a package in the mail instead of waiting in line at the store, meant that early January became increasingly popular. more important for logistics companies. The pandemic has intensified this trend, as it has with so many aspects of e-commerce and consumer behavior.

For the week of January 4,

United parcel service

(ticker: UPS) tells Barron ‘s that he expects 1.75 million returns to enter his system each day, for a record total of 8.75 million returns. This is an increase of 23% from the highest return volume week of the previous 2019-2020 holiday season, the first year that UPS experienced several high volume “return weeks”.

For its part,

FedEx

(FDX) did not provide a specific figure, but says it has set records for the volume of returns in the past six consecutive months, a trend the company plans to continue over the next few months.

During the 2020 holiday season, the U.S. Postal Service delivered over one billion packages. “[Returns] numbers are not currently available, but we expect the volume of returns to be high, ”a USPS spokeswoman said. Barron. The post also asked customers to be patient, citing unprecedented volume and limited availability of employees due to Covid-19.

Everyone seems to be busier than usual.

As anyone who has ordered a pair of shoes that’s too tight or received an unwanted gift knows, easy returns are a key part of the process. This step has taken on more importance this year, as more and more people shop from home.

So it’s no surprise that consumers pay close attention to it, says Guy Bloch, CEO of Bringg delivery orchestration software platform.

“Too often, online shoppers abandon their carts without purchasing because they are not happy with their fulfillment or return options, or the prices,” he says. “Retailers who advertise extended return windows and alternate return locations have a competitive advantage when paying. ”

Bloch argues that it is beneficial for retailers to be as flexible as possible with returns, although most customers will ultimately not use the service, but want peace of mind.

This dynamic is one of the reasons why FedEx agreed in December to buy ShopRunner, which connects brands and merchants, manages discounts, shipments and of course returns.

Of course, fast, free two-way delivery doesn’t come cheap: while bigger retailers can more easily digest the costs, smaller ones can struggle. A physical presence can help, offering an alternative to returns by mail. Investors can remember when the e-commerce pioneer

Amazon.com

(AMZN) has entered into such an agreement with

Kohl’s

(KSS) to accept its returns in 2017, six years after the establishment of its lockers.

This may be less useful during a pandemic, when shoppers are avoiding stores, of course. Nevertheless, it announces flexibility and choice. “This personalized, customer-centric approach to returns, more than a specific feedback or fulfillment channel, is truly the ‘new normal’,” says Bloch.

UPS, for its part, is promoting a network of easy-to-return access points, which includes business partners such as pharmacy giant

CVS Health

(CVS) and Arts and crafts chain

Michaels

(MIK). She “is committed to making it easier than ever for customers to have a seamless return experience,” according to the company.

Despite the complexity and additional demands brought on by the pandemic, many logistics stocks exploded in 2020. FedEx shares, for example, gained about 72%. UPS inventory increased by about 48%. The Russell 3000 Trucking Index gained nearly 30%.

The gains leave FedEx and UPS trading at around 20 times the estimated earnings for calendar year 2021, higher than historical multiples. However, this is a reduction from the price-to-earnings ratio of about 22 times the

S&P 500.

Higher valuations do not scare Wall Street, however. About 55% of analysts covering UPS interest rate stocks buy. Over 70% of them recommend buying FedEx shares. In comparison, the average Purchase ratio of shares in the

Dow Jones Industrial Average

is about 57%.

Analysts seem to recognize the value of this new operating environment. The average analyst target price for FedEx, inventory has increased by about 90% in the past six months, while the comparable figure for UPS is nearly 40%.

Barron may revel (a little) in recent stock performance. We wrote positively about both FedEx and UPS in 2019, believing, in part, that the growth of Amazon and e-commerce was an opportunity, not a threat. This thesis worked well in 2020.

Shares of both, however, have been weak of late. FedEx and UPS fell about 11% and 5%, respectively, over the past month, while the market is up about 2%. Investors could take profits. There might also be a little concern about the sustainability of benefits in a post-Covid world.

Another benefit for these stocks might hinge on how the two companies handle higher ecommerce volumes, which of course includes returns.

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