De Minimis Shock Morphs Into De Majoris Challenge For UPS And FedEx

Core Viewpoint - United Parcel Service Inc. (UPS) and FedEx Corp. are facing challenges due to the end of U.S. de minimis exemptions, which is tightening trade flows, threatening parcel volumes, and increasing costs as the peak shipping season approaches [1] Company Summaries UPS - Bank of America Securities downgraded UPS to Underperform from Neutral, citing a soft peak backdrop for 2025 and reducing earnings estimates and price forecasts [2] - The price forecast for UPS was lowered to $83 from $91, with revised earnings estimates of $1.30 for Q3 2025, $6.50 for fiscal 2025, and $6.70 for fiscal 2026, reflecting reductions of 6%, 3%, and 4% respectively [3] - UPS has struggled to offset volume losses, particularly as it reduces Amazon-related shipments, which account for approximately 11% of revenue [4] - U.S.-China parcel flows, a significant revenue source for UPS, fell nearly 35% year over year in May and June due to the loss of de minimis access [4] - Since the start of 2025, EPS estimates for UPS have decreased by 26% to 33% [7] FedEx - FedEx was downgraded to Neutral from Buy, with a dimming outlook despite ongoing cost-cutting measures and plans to spin off its Freight division [2] - The price forecast for FedEx was reduced to $240 from $245, with earnings estimates lowered by 7% for Q1 fiscal 2026, 6% for fiscal 2026, and 7% for fiscal 2027, now at $3.56, $17.75, and $20.45 respectively [5] - The margin expectation for FedEx's Express unit was lowered to 6.9% from 7.3%, with inflationary pressures and weakening trade flows cited as key performance drags [6] - Since the start of 2025, EPS estimates for FedEx have fallen by 23% to 24% [7] Industry Overview - The broader sector outlook is deteriorating due to the lapse of the de minimis exemption, which previously allowed many small parcels, particularly from China, to bypass duties [7] - Both UPS and FedEx derive over 15% of their revenue from international express shipments, making the policy shift a significant concern in an already soft macro environment [7]