Bank of America Downgrades FedEx and UPS Amid Weak Air Package Demand

BofA downgraded shares of FedEx and UPS due to concerns over weak global air package demand. Despite recent quietness in the Industrials sector, analysts expect year-end strength. This comes after the bank downgraded the two companies on September 11.

Bank of America (BofA) has downgraded shares of FedEx Corporation (FDX) and United Parcel Service (UPS) due to concerns over muted global air package demand. The downgrade follows the end of de minimis exemptions for shipments from China, Hong Kong, and the rest of the world, which has increased pressure on volumes and costs for both companies. The move comes amidst recent quietness in the Industrials sector, where analysts still expect year-end strength.

The de minimis exemptions, which allowed for duty-free shipments below a certain value, ended on May 2 for packages from China/Hong Kong and on August 29 for the rest of the world. This change has significantly impacted international shipments, which represent about 16% of UPS’s and 17% of FedEx’s revenues. Analysts at BofA estimate that nearly 4 million packages per day were moving under these exemptions UPS and FedEx see rating cuts at BofA due to concerns of muted global air package demand^[1].

BofA cut UPS to Underperform from Neutral, citing increased pressure on volumes and costs. The bank also lowered its price target for UPS to $83, a 6% decrease from its previous estimate. For FedEx, BofA cut the rating to Neutral from Buy and lowered the price target to $240. The bank noted that the change in de minimis exemptions 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 BofA cuts UPS, FedEx ratings, citing de minimis volume and cost pressures^[3].

UPS faces additional challenges, including shedding half of its Amazon volumes, which represent 11% of its revenues. Since the end of the China/Hong Kong de minimis exemption, UPS’s average daily volumes in its US-China trade lane fell by 34.8% year-over-year in May/June BofA cuts UPS, FedEx ratings, citing de minimis volume and cost pressures^[3]. The company’s CEO, Carol Tome, highlighted uncertainty around peak season demand, small and mid-size business mix pressure, tariff policy, and voluntary labor separation.

FedEx, on the other hand, faces de minimis volume and margin pressure, along with sub-seasonal readthroughs from Less-than-Truckload peers. BofA cut FedEx’s EPS estimates for the first quarter of 2026, 2026, and 2027 by 7%, 6%, and 7%, respectively, and lowered the price target to $240 BofA cuts UPS, FedEx ratings, citing de minimis volume and cost pressures^[3].

Despite these challenges, analysts still expect the Industrials sector to show year-end strength. The recent quietness in the sector may be a temporary lull before a potential rebound, driven by factors such as global economic recovery and increased consumer spending.