Bank of America Downgrades UPS to Underperform, Trims FedEx Target to $240 - De Minimis Change Puts 4M Daily Parcels at Risk

Bank of America (NYSE: BAC) just took a dimmer view of the big parcel carriers after Washington scrapped the de minimis shipping exemption. Analyst Ken Hoexter trimmed his ratings and price targets for both UPS and FedEx, arguing the policy shift will sap volumes and lift costs for airfreight businesses.

Hoexter cut UPS (NYSE: UPS) from neutral to underperform and moved FedEx (NYSE: FDX) from buy to neutral. The price targets landed at $83 for UPS (an $8 reduction) and $240 for FedEx (down $5). On paper those targets imply roughly a 1% downside for UPS and about 6.3% upside for FedEx versus the prior levels.

The policy change removes the long-standing exemption that let low-value imports enter the U.S. via the international postal network without duties. Under the new rule, parcels valued at or below $800 are now liable for applicable duties. That's a big swing: shipments that previously moved duty-free made up roughly 92% of incoming cargo - up to about four million packages a day.

Hoexter flagged how much of that flow touches the majors. International Priority and International Economy make up about 17% of FedEx's revenue and roughly 16% of UPS's revenue. Translated into package counts, that's roughly 1.1 million of FedEx's average 17 million daily packages and about 1.7 million of UPS's 20 million - a combined 2.8 million daily parcels. Not every one of those was de minimis, but it's a sizable slice of the roughly 4 million daily shipments that were duty-free until now.

Bank of America's note argues these changes will mute the air peak season in 2025. The tight peaks in 2023 and 2024 were largely driven by air freight tied to Chinese e-commerce exploiting the de minimis loophole, Hoexter wrote. With that channel curtailed, the analyst expects weaker air demand and some pressure on margins.

UPS has already shown early signs of strain. The company reported a drop in second-quarter profit and revenue, and said its May-June average daily volumes on the U.S.-China lane fell 34.8% year over year after the de minimis rule for China and Hong Kong ended on May 2. That's not a hint - it's a measurable hit.

Market moves reflect the mood. UPS shares are down about 33.5% year-to-date, while FedEx has slid roughly 19.8% in the same stretch.

There's a lot to unpack for traders watching logistics and airfreight exposure: a big chunk of cross-border parcel flow just became economically different overnight, and the carriers that handled much of it now face a changed revenue mix and seasonal dynamics. Will other lanes or service types pick up the slack? Time - and peak season numbers - will tell.