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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.
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.
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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.
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)
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 email@example.com
(END) Dow Jones Newswires
July 28, 2017 06:51 ET (10:51 GMT)