UPS Has A Strong End to a Transformative Year

February 3, 2020


UPS delivered positive fourth quarter earnings closing out a year that saw digital services, drones and alternative vehicles play a bigger role in its growth strategy.

Indeed, for the quarter, UPS reported a 3.6% increase in total revenue, an 8.9% in net income and a successful peak season. Average daily volume levels exceeded 26.6 million packages, an increase of 7.5%, driven by high demand for air services in the U.S.

Within its largest segment, U.S. Domestic, total volume across all products grew nearly 9%.  Growth was driven by the shift to faster delivery in retail and e-commerce, and from competitive wins. Revenue increased 6.5% while operating profit increased 7.5%, up over 20% on an adjusted basis.

Ground and Air go hand in hand according to UPS on their earnings call and it has been quite noticeable since second quarter 2019 when we suspect Amazon began shifting volumes to UPS. For the final quarter of the year, Next Day Air average daily volumes increased 25.9% and 22.5% for the year while Deferred average daily volumes were up 15.6% and 13.3% for the year. However, revenue per piece for the two air products, in particular, declined throughout the year due to what UPS described lower weight and customer mix.

Amazon is UPS Largest Customer

As for Amazon, UPS made it official by announcing that the e-commerce giant is its largest customer making up 11.6% of its total revenue – an estimated $8.6 billion. Expect faster service offerings and an expansion of UPS’ network to help out its large customer. In fact, UPS recently announced plans for a new ‘super hub’ in Harrisburg, PA, along with three new Pennsylvania sortation and distribution facilities in Carlisle, Lehigh Valley and Philadelphia to speed deliveries in the busy northeast U.S.

For 2020, UPS will further expand extended hours pick up service for next day ground deliveries to cover 98% of the U.S. population. It will also expand weekend delivery services - doubling volumes to reach an additional 40 million for Saturday deliveries and launching an 'economical' Sunday delivery service to majority of US.

UPS Making Investments for Small Businesses

UPS is also tackling market and technology trends head-on by investments, trials and implementation of new services. A flurry of press releases was released just prior to their fourth quarter earnings describing some of these ventures. For example, as part of its e-commerce and small-to-medium size business strategy, UPS launched the Digital Access Program in October that helps e-commerce platforms provide a “comprehensive suite of order management, fulfillment and delivery services to simplify logistics complexity.” As part of the program, UPS now offers free plug-ins to make UPS tools and services seamlessly available within four e-commerce platforms commonly used on websites: WooCommerce, PrestaShop, OpenCart and Magento. UPS also announced that it will offer shipping options that are integrated into the Square Online Store.

UPS Embraces Alternative Delivery Methods

Meanwhile, in 2019 UPS announced a new subsidiary, UPS Flight Forward, which received the Federal Aviation Administration’s (FAA) Part 135 Standard certification with authorization to use unmanned aircraft systems to operate a drone delivery program at WakeMed Hospital in Raleigh, NC.  They have also recently announced relationships with Henry Schein, the University of California San Diego Health system and Matternet.

UPS has embraced alternative delivery services as a means of eventual cost savings but more importantly as a means of sustainability. Through its venture capital arm, UPS Ventures, UPS took a minority investment in Arrival, which makes electric vehicle platforms and purpose-built vehicles. Along with this investment in Arrival, UPS also announced a commitment to purchase 10,000 electric vehicles to be built for UPS with priority access to purchase additional electric vehicles.

In addition, UPS and self-driving technology company Waymo announced a partnership to pilot autonomous vehicle package pickup in the Metro Phoenix area. Starting within the next month or so, Waymo’s Chrysler Pacifica minivans will deliver packages from The UPS Store locations to a local UPS sorting facility for processing.

As UPS reaps the benefits of its network and technology investments, it also has taken on Amazon as a major customer. UPS will need to manage this relationship carefully while extending its services to new audiences to balance their customer portfolio. In addition, while keeping an eye towards new technologies is necessary, maintaining services and relationships with existing customers still needs to be a top priority. Customers are beginning to take notice of their options including those from FedEx. FedEx is hungry and as noted by their CEO in a recent Bloomberg article, they believe they have the right strategy for today’s competitive environment. We’ll see who wins this battle.

 

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UPS Has A Strong End to a Transformative Year

February 3, 2020


UPS delivered positive fourth quarter earnings closing out a year that saw digital services, drones and alternative vehicles play a bigger role in its growth strategy. Indeed, for the quarter, UPS reported a 3.6% increase in total revenue, an 8.9% in net income and a successful peak season. Average daily volume levels exceeded 26.6 million packages, an increase of 7.5%, driven by high demand for air services in the U.S. Within its largest segment, U.S. Domestic, total volume across all products grew nearly 9%.  Growth was driven by the shift to faster delivery in retail and e-commerce, and from competitive wins. Revenue increased 6.5% while operating profit increased 7.5%, up over 20% on an adjusted basis. Ground and Air go hand in hand according to UPS on their earnings call and it has been quite noticeable since second quarter 2019 when we suspect Amazon began shifting volumes to UPS. For the final quarter of the year, Next Day Air average daily volumes increased 25.9% and 22.5% for the year while Deferred average daily volumes were up 15.6% and 13.3% for the year. However, revenue per piece for the two air products, in particular, declined throughout the year due to what UPS described lower weight and customer mix.

Amazon is UPS Largest Customer

As for Amazon, UPS made it official by announcing that the e-commerce giant is its largest customer making up 11.6% of its total revenue – an estimated $8.6 billion. Expect faster service offerings and an expansion of UPS’ network to help out its large customer. In fact, UPS recently announced plans for a new ‘super hub’ in Harrisburg, PA, along with three new Pennsylvania sortation and distribution facilities in Carlisle, Lehigh Valley and Philadelphia to speed deliveries in the busy northeast U.S. For 2020, UPS will further expand extended hours pick up service for next day ground deliveries to cover 98% of the U.S. population. It will also expand weekend delivery services - doubling volumes to reach an additional 40 million for Saturday deliveries and launching an 'economical' Sunday delivery service to majority of US.

UPS Making Investments for Small Businesses

UPS is also tackling market and technology trends head-on by investments, trials and implementation of new services. A flurry of press releases was released just prior to their fourth quarter earnings describing some of these ventures. For example, as part of its e-commerce and small-to-medium size business strategy, UPS launched the Digital Access Program in October that helps e-commerce platforms provide a “comprehensive suite of order management, fulfillment and delivery services to simplify logistics complexity.” As part of the program, UPS now offers free plug-ins to make UPS tools and services seamlessly available within four e-commerce platforms commonly used on websites: WooCommerce, PrestaShop, OpenCart and Magento. UPS also announced that it will offer shipping options that are integrated into the Square Online Store.

UPS Embraces Alternative Delivery Methods

Meanwhile, in 2019 UPS announced a new subsidiary, UPS Flight Forward, which received the Federal Aviation Administration’s (FAA) Part 135 Standard certification with authorization to use unmanned aircraft systems to operate a drone delivery program at WakeMed Hospital in Raleigh, NC.  They have also recently announced relationships with Henry Schein, the University of California San Diego Health system and Matternet. UPS has embraced alternative delivery services as a means of eventual cost savings but more importantly as a means of sustainability. Through its venture capital arm, UPS Ventures, UPS took a minority investment in Arrival, which makes electric vehicle platforms and purpose-built vehicles. Along with this investment in Arrival, UPS also announced a commitment to purchase 10,000 electric vehicles to be built for UPS with priority access to purchase additional electric vehicles. In addition, UPS and self-driving technology company Waymo announced a partnership to pilot autonomous vehicle package pickup in the Metro Phoenix area. Starting within the next month or so, Waymo’s Chrysler Pacifica minivans will deliver packages from The UPS Store locations to a local UPS sorting facility for processing. As UPS reaps the benefits of its network and technology investments, it also has taken on Amazon as a major customer. UPS will need to manage this relationship carefully while extending its services to new audiences to balance their customer portfolio. In addition, while keeping an eye towards new technologies is necessary, maintaining services and relationships with existing customers still needs to be a top priority. Customers are beginning to take notice of their options including those from FedEx. FedEx is hungry and as noted by their CEO in a recent Bloomberg article, they believe they have the right strategy for today’s competitive environment. We’ll see who wins this battle.  

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