By Paul Page
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Amazon.com Inc.'s shipping costs are rising faster than its
retail revenue, but that's unlikely to change the e-commerce
behemoth's strategy. Amazon reported a $197 million second-quarter
net profit that was down sharply from a year ago, the WSJ's Laura
Stevens reports, even as sales jumped another 25% to $38 billion.
The sales growth is a big contrast with financial reports from the
big store-operating retailers, but Amazon also saw the costs of
getting those online orders delivered soar. Shipping expenses rose
36% and fulfillment costs jumped 41%, measures that reflect both
Amazon's growing share of the retail market and its drive to
control its own logistics and shipping operations. The retailer is
plowing its cash back into product development, warehouse building
and delivery infrastructure, as well as overseas expansion and
video content. The logistics investment will continue as the
company gets its fulfillment operation aligned with sales for the
fourth quarter holiday rush, when Amazon's promises of faster
delivery times could push the company's spending on shipping beyond
$7 billion.
United Parcel Service Inc. expects retailers to get behind
higher shipping prices this fall , and the package carrier's latest
results suggest why UPS is so confident. Revenue in the company's
U.S. domestic business picked up faster than even the strong growth
in parcel volumes, the WSJ's Paul Ziobro reports, signaling UPS is
already getting paid more for the extra packages it delivers.
Parcel carriers have struggled to turn stronger shipping volumes
from online sales into profits, and UPS last month detailed a new
add-on fee aimed at the flood of shipments that rises in the period
leading up to Christmas. Prices are holding up even without the
fees: Average revenue per piece in UPS's domestic package network
rose 3%, and rose slightly more in the ground operations that carry
most of the e-commerce shipments. The bottom line was a 9% gain in
profit to $1.38 billion, but the 14.3% improvement in domestic
operating margin may be more important in the long run.
U.S. exporters are riding higher on a weaker dollar. Companies
reporting on second-quarter earnings say they are benefiting from
growing demand for goods and services by foreign buyers, the WSJ's
Ben Eisen reports, along with expectations for faster global growth
with continued low inflation. The dollar edged up on Thursday, but
one measure of the dollar against other big currencies shows its
value off about 8.6% this year to its lowest level in 13 months.
CSX Corp. executive Fredrik Eliasson said the weaker dollar is
helping drive some of the resurgent growth in the company's coal
volumes, with more loads heading into export channels. CSX expects
to see more outbound flows as the weaker dollar affects more global
purchasing decisions. Export volumes at major U.S. ports overall
were relatively tepid in June, according to researchers at Panjiva.
But South Carolina's Port of Charleston says growth in its outbound
volumes has been accelerating, and jumped 12.9% in June.
E-COMMERCE
France's President Emmanuel Macron is providing a stark sign of
how important the shipping business is to the government. The
administration is temporarily nationalizing the STX France shipyard
to stop Italian company Fincantieri SpA from taking majority
control of the business, the WSJ's William Horobin and Giovanni
Legorano report, a move the economy minister says will "defend
France's strategic interests in ship building." Mr. Macron's first
major industrial move since coming to power in May runs counter to
his pro-business campaign rhetoric and highlights the ongoing
turmoil in shipbuilding following the historic downturn in recent
years in the shipping business. STX Saint-Nazaire was a piece of
STX Offshore and Shipbuilding, the South Korean shipyard that
recently left receivership with help from the government-run Korea
Development Bank. Seoul considers STX a strategic asset, and now
France is demonstrating with its move to nationalize the shipyard
there that it also doesn't want to see the local operation's jobs
and work drift away.
Amazon is trying to find out if going after a narrow band of
higher-spending consumers will make international expansion more
profitable. The e-commerce company is moving into Southeast Asia
with service in Singapore by initially offering Prime Now, Amazon's
fast-delivery option that offers a smaller selection of goods, the
WSJ's Laura Stevens and Liza Lin report. That will likely put more
pressure on the logistics side of the operation at the outset, as
the company tries to meet the tight delivery windows that are part
of the service. But Amazon expects to learn whether turning its
usual market approach upside down provides a better return.
Singapore is attractive because of its tight geography,
business-friendly environment and affluent population. It also
carries logistics challenges, with warehouse space at a premium,
that will test just how much Amazon and its customers will pay for
fast delivery.
Years after placing a big bet on scale in the airline business,
Airbus SE is backing away from the table. The European jet maker is
cutting production of its A380 superjumbo to just eight a year, the
WSJ's Robert Wall reports, bringing nearer to an end the era of
big, four-engine long-haul aircraft that have defined aviation's
jet era. Airbus rolled out the double-decker A380 as what the
manufacturer would be the next step in bringing economies of scale
in the airline industry. But the plane hasn't caught on in the way
ocean carriers have rushed to buy megaships, Passengers Airlines
have shied away from the big, expensive planes, opting for
flexibility and flight frequency with smaller jets like the A350
and Boeing Co.'s 787. FedEx Corp. and UPS canceled their early A380
freighter orders as cargo operators also found the long-term
economics work better for planes that aren't as big.
QUOTABLE
IN OTHER NEWS
The U.S. Surface Transportation Board called on CSX Corp. to fix
the "very serious" service problems that have hit freight rail
shippers. (WSJ)
U.S. orders for durable goods jumped 6.5% in June, although they
rose only 0.2% excluding transportation. (WSJ)
Mexico's exports rose 11.5% in June, including a 17.8% surge in
shipments of vehicles and auto parts. (WSJ)
U.S. retail and wholesale inventories both jumped 0.6% in June.
(MarketWatch)
Congressional Republicans and the White House dropped a plan to
tax imports and exempt exports as part of their strategy to rewrite
the U.S. tax code. (WSJ)
Higher costs shipping iron ore to China helped send
second-quarter profit at Brazilian mining giant Vale SA down
sharply to $16 million. (WSJ)
China is temporarily barring meat imports from six Australian
slaughterhouses over concerns about labeling discrepancies on
products. (WSJ)
Delta Air Lines Inc., Air France-KLM SA and China Eastern
Airlines Corp. strengthened their partnership through a series of
share transactions. (WSJ)
Royal Dutch Shell PLC says it is preparing for "lower forever"
oil prices as demand for oil reaches a peak before receding.
(WSJ)
Diageo PLC boosted its operating profit 20% on currency gains
and improved sales of spirits across its major regions. (WSJ)
Anheuser-Busch InBev NV reported surging profit even as the
world's largest brewer by sales lost ground in the U.S. (WSJ)
Unpaid creditors of Katy Industries Inc. are suing to undo the
recent sale of the bankrupt company's three Midwest manufacturing
plants. (WSJ)
The European Commission ordered France and Belgium to end tax
breaks for ports. (Associated Press)
YRC Worldwide Inc. plans to add eight distribution centers to
relieve backups in its YRC Freight trucking network. (DC
Velocity)
Old Dominion Freight Line Inc.'s second-quarter profit soared
20.9% to $98.4 million as freight tonnage, pricing and revenue all
rose at a strong pace. (Winston-Salem Journal)
Dollar Tree Inc. is placing a 1.2 million-square-foot
distribution center about 50 miles southwest of Kansas City.
(Missourinet)
China Cosco's dry bulk operation will work with China
state-owned grain trader COFCO Group on shipping and logistics
business. (Splash 24/7)
ABOUT US
Paul Page is deputy editor of WSJ Logistics Report. Follow him
at @PaulPage, and follow the entire WSJ Logistics Report team:
@brianjbaskin , @jensmithWSJ and @EEPhillips_WSJ. Follow the WSJ
Logistics Report on Twitter at @WSJLogistics.
Write to Paul Page at paul.page@wsj.com
(END) Dow Jones Newswires
July 28, 2017 06:51 ET (10:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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