FedEx Corp. and competing cargo airlines are finding their yields squeezed in an economy that Alan Greenspan once observed is putting good things in ever-smaller packages.

Both FedEx and United Parcel Service Inc. have posted drops in revenue per package this year. With clients used to paying by weight, softer demand from a weakening global economy has hampered the carriers' ability to change the way they set rates.

“If weight per shipment was going up, that was always a good sign,” said Kevin Sterling, a BB&T Capital Markets analyst in Richmond, Virginia, who has a buy rating on both companies. “That is no longer a valid key statistic to look at to determine if the freight economy is improving. Everything seems to have gotten lighter.”

FedEx and UPS are grappling simultaneously with sales growth that has slowed from more than 10 percent in mid-2010 to less than 5 percent in the most recent quarter, and they have trimmed full-year profit forecasts. Shares in both companies have underperformed the broader Standard & Poor's 500 Index this year, with UPS falling 1.9 percent through yesterday and FedEx rising 1.1 percent.

The pressure on their performance from smaller manufactured goods, which affect all cargo companies, can be seen on a broader scale in the tonnage of U.S. gross domestic product.

The measure has been stagnant for decades, which implies a continually dropping weight per dollar, Greenspan, the former Federal Reserve chairman, said in a telephone interview this week.

“The development of the integrated circuit has had a dramatic effect on making the world into ever smaller units,” Greenspan said. He cited Moore's Law, the principle associated with Intel Corp. co-founder Gordon Moore that the number of transistors on an integrated circuit doubles every two years.

Products such as televisions built by Emerson Radio Corp. illustrate the magnitude of miniaturization in the 13 years since Greenspan discussed it in a 1999 speech in Dallas.

A 22-inch cathode ray-tube set from 2002 weighs about 75 pounds and is almost 2 feet thick, while an Emerson LED model with the same screen size, available today, weighs just 7.5 pounds and is only 2 inches thick.

Freight intensity, measured as the ratio of total ton-miles to GDP, shows that freight activity required to produce goods and services in the U.S. dropped from 0.59 ton-mile per dollar in 1970 to 0.38 ton-mile in 2002, according to the federal Bureau of Transportation Statistics.

'Big Winners'

Shippers and consumers are the “big winners” of the trend, said Aaron Gellman, a professor of management and strategy at Northwestern University's Kellogg School of Management. Though cargo companies are likely to respond with changes to the way they calculate rates, those may be years away, he said.

At present, both companies base rates on volume, distance and service level, according to spokesmen.

The timing isn't right for major changes to pricing systems, Satish Jindel, president of SJ Consulting Group in Sewickley, Pennsylvania, said in a telephone interview. “As the carriers modify their dimension of charge, more customers are going to say, 'How much of my transportation involves air? Nobody's buying, so why am I shipping air?'”

The Drewry Air Freight Price Index fell 13 percent in August from July, the largest drop in 20 months, and was 17 percent lower than a year earlier. The average rate was $3.32 a kilogram, the fourth consecutive month below $4. Since the start of 2011, the average rose as high as $4.61, in October.

At FedEx's Express unit, the Memphis, Tennessee-based company's largest, revenue per package pound has dropped on from a year earlier for the past six quarters. Sales of $2.20 a pound in the three months through August compared with $2.66 in the same period in 2010.

UPS's revenue per package from next-day air delivery in the U.S. declined from the previous year in the first two quarters of 2012, with a drop of about 2 percent to $20.42 in the period through June.

Chief Financial Officer Kurt Kuehn noted a “meaningful decrease” in weight per shipment in the 2011 holiday season. The company's lightweight products, tailored to take advantage of the change, benefited from smaller goods such as tablet and portable computers, he said.

FedEx spotlighted the strains on its business this month when it cut its profit forecast, sending the shares to their biggest drop since June 1.

Fundamental Change

Shipping has faced a fundamental change in the past few months, with exports and trade declining faster than global gross domestic product, FedEx Chief Executive Officer Fred Smith said on an earnings call at the time. The reverse was true for the past 25 years, excepting meltdowns in 2000-2001 and 2008-2009, he said.

Quarterly volumes fell for FedEx's premium delivery services in the U.S. and overseas as slowing growth in China, the European debt crisis and unemployment above 8 percent in the U.S. prompted manufacturers to switch to less-expensive shipping methods that generate less income.

“Trade down” has also been an issue in recent years for Atlanta-based UPS as customers have tightened budgets, said Mike Mangeot, a spokesman for the company's airlines service.

UPS cut its full-year forecast to $4.50 to $4.70 a share from $4.75 to $5 a share in July after second-quarter profit trailed analysts' estimates. FedEx lowered its full-year earnings projection to $6.20 to $6.60 a share from $6.90 to $7.40 a share in September.

Technology isn't the only driver in shrinking sizes. Some of U.S. output's weight loss is due to environmental conservation efforts such as cutting carbon footprints.

Apple Inc. touts smaller iPhone containers on its website, saying “efficient packaging design not only reduces materials and waste, it also helps reduce the emissions produced during transportation.”

The iPhone's package volume was cut 42 percent from 2007 to 2011, letting the company ship 80 percent more boxes in each airline shipping container and saving one flight on a Boeing Co. 747 jumbo freighter for every 371,250 units it ships, Apple said.

Along with drawbacks, cargo airlines also stand to garner benefits from rapid technological change as consumers seek to replace goods that are quickly outdated.

“Short product cycles and obsolescence cost drives the actual turnaround of products, which again increases the actual shipping volumes,” Rob Siegers, president of the global technology sector at DHL's Customer Solutions, said in an e-mailed response to questions.

'How Small?'

The demand for the latest high-tech products like Apple's iPhone 5 illustrates that, said Donald Broughton, an Avondale Partners LLC analyst based in St. Louis.

“Airfreight will go on to establish all new highs, because that's technology,” he said. “We want it immediately from wherever we want it.”

Cargo companies can further improve their situations by cutting capacity and improving enhancements such as real-time tracking services, which will help them regain pricing power, analysts said. The arc toward tinier sizes has its limits, they said.

“How small is a cellphone going to get?” Kellogg's Gellman asked.

Already, demand for smaller cellphones has been mitigated as some customers press for screens large enough to meet individual usage needs, DHL's Siegers said.

“In the past, mobile phones had to be as small as possible,” he said. “Today there are different smartphones with different screen sizes on the market.”

Another boost for cargo companies is in the higher price tag carried by smaller electronic items, said Raj Subramaniam, FedEx's senior vice president of global marketing.

“Electronic products have been getting smaller for years,” he said. “When that happens, the value per pound goes up. When that happens, it's more likely to go on an express transportation mode than otherwise.”

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