UPS and FedEx see rating cuts at BofA due to concerns of muted global air package demand

[A sharp close-up on the vibrant purple tail of a FedEx Express cargo plane, clearly displaying the iconic orange Ex in its logo.]
Marvin Samuel Tolentino Pineda/iStock Editorial via Getty Images

United Parcel Service (NYSE:UPS [https://seekingalpha.com/symbol/UPS]) and FedEx Corporation (NYSE:FDX [https://seekingalpha.com/symbol/FDX]) are on watch after Bank of America warned that the de minimis impact is a major factor for both companues/.

BofA cut UPS (NYSE:UPS [https://seekingalpha.com/symbol/UPS]) to Underperform from Neutral and slid its rating on FedEx (NYSE:FDX [https://seekingalpha.com/symbol/FDX]) to Neutral from Buy to account for increased pressure on volume and costs as a result of the de minimis impacts to airfreight carriers.

Analyst Ken Hoexter highlighted that nearly 4 million packages per day were moving under U.S. de minimis exemptions that ended on May 2 for packages from China/Hong Kong and for the rest of the world on August 29.

"International Priority & Economy (Export) Packages represent 17% of FedEx’s revenues and 16% of UPS’ (excludes Domestic ops in International markets; or ~1.1 mil packages/ day of FedEx’s 17 mil avg daily packages and ~1.7 mil packages/day of UPS’ 20 mil avg daily packages). The combined 2.8 mil are not all de minimis, but a sizable portion of the 4 mil daily de minimis shipments," wrote Hoexter.

The removal of the de minimis exemption is expected to result in a muted air peak season in 2025 as the tight peak markets in 2023-2024 were driven by air demand from Chinese e-commerce players using the de minimis loophole.

Hoexter and his team lowered the price objective on UPS (UPS [https://seekingalpha.com/symbol/UPS]) to $83 and cut the PT on FedEx (FDX [https://seekingalpha.com/symbol/FDX]) to $240.

Shares of UPS (UPS [https://seekingalpha.com/symbol/UPS]) fell 2.2% in premarket action. FedEx (FDX [https://seekingalpha.com/symbol/FDX]) was down 1.8%.

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