Strong Second Quarter as UPS focuses on Being Better, not Bigger

July 31, 2020


Record US domestic volumes as UPS reported a strong second quarter earnings. Overall, the company reported total revenue increased 13.4% to $20.5 billion, adjusted net income increased 8.8% to $1.9 billion and adjusted operating profit increased 7.4% to $2.3 billion.

VOLUMES

As consumers abided by stay at home requests from governments and employers due to COVID-19, Average daily volume increased 22.8%, reaching 21.1 million packages per day. SurePost increased 96.6% and represented 53% of total U.S. Domestic volume growth.

Volume approached peak like levels in May and June, significantly above April. This increase, according to UPS created “some network constraints and some regional dips in service levels”. The result was temporary peak surcharges on some volumes including Ground Residential, SurePost and Large Packages. The surcharge was levied to manage demand according to UPS but, the company noted that cost per piece declined 2.7% year-over-year and declined sequentially 8.4%, due to lower fuel costs and its “ability to scale and flex the network as volume surged”.

OPERATING MARGINS

While revenue and volumes were positive for the U.S. Domestic group, operating margins slipped. UPS noted that moving forward, its focus will be on improving network efficiency, optimizing volumes and better alignment of pricing with the value it provides. In other words, expect higher rates and surcharges.

The International group was the only group to report a positive operating profit, up 26.6% on an adjusted basis. Total export volume grew 11.4% led by outbound volumes from Asia and cross-border e-commerce in Europe. Asia outbound volume grew 46.8% in the quarter. Like the US Domestic group, capacity surcharges were introduced in March to “manage demand”.  This surcharge has increased a couple of times throughout the quarter and again July.

MIXED RESULTS

The Supply Chain & Freight group reported mixed results across its business units. Total revenue grew 8.5% to $3.7 billion while profit declined $6 million or 2.2%. Air freight forwarding led the segment due to the surge in market rates out of Asia, caused by the decline in passenger belly space while there was weaker demand in the LTL and truckload brokerage units.

LOOKING FORWARD

Improvements in time in transit by the end of October are expected to result in parity or better in 20 of the 25 top markets in the US, the ability to reach 90% of the US population in three days and 75% of the US population will have Saturday delivery.

The outlook for the second half of the year is positive with expected good volumes, albeit perhaps not as strong as second quarter on a percentage basis, positive gains in revenue but operating margins may continue to be pressured in the US Domestic group.

 


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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Strong Second Quarter as UPS focuses on Being Better, not Bigger

July 31, 2020


Record US domestic volumes as UPS reported a strong second quarter earnings. Overall, the company reported total revenue increased 13.4% to $20.5 billion, adjusted net income increased 8.8% to $1.9 billion and adjusted operating profit increased 7.4% to $2.3 billion.

VOLUMES

As consumers abided by stay at home requests from governments and employers due to COVID-19, Average daily volume increased 22.8%, reaching 21.1 million packages per day. SurePost increased 96.6% and represented 53% of total U.S. Domestic volume growth. Volume approached peak like levels in May and June, significantly above April. This increase, according to UPS created “some network constraints and some regional dips in service levels”. The result was temporary peak surcharges on some volumes including Ground Residential, SurePost and Large Packages. The surcharge was levied to manage demand according to UPS but, the company noted that cost per piece declined 2.7% year-over-year and declined sequentially 8.4%, due to lower fuel costs and its “ability to scale and flex the network as volume surged”.

OPERATING MARGINS

While revenue and volumes were positive for the U.S. Domestic group, operating margins slipped. UPS noted that moving forward, its focus will be on improving network efficiency, optimizing volumes and better alignment of pricing with the value it provides. In other words, expect higher rates and surcharges. The International group was the only group to report a positive operating profit, up 26.6% on an adjusted basis. Total export volume grew 11.4% led by outbound volumes from Asia and cross-border e-commerce in Europe. Asia outbound volume grew 46.8% in the quarter. Like the US Domestic group, capacity surcharges were introduced in March to “manage demand”.  This surcharge has increased a couple of times throughout the quarter and again July.

MIXED RESULTS

The Supply Chain & Freight group reported mixed results across its business units. Total revenue grew 8.5% to $3.7 billion while profit declined $6 million or 2.2%. Air freight forwarding led the segment due to the surge in market rates out of Asia, caused by the decline in passenger belly space while there was weaker demand in the LTL and truckload brokerage units.

LOOKING FORWARD

Improvements in time in transit by the end of October are expected to result in parity or better in 20 of the 25 top markets in the US, the ability to reach 90% of the US population in three days and 75% of the US population will have Saturday delivery. The outlook for the second half of the year is positive with expected good volumes, albeit perhaps not as strong as second quarter on a percentage basis, positive gains in revenue but operating margins may continue to be pressured in the US Domestic group.  

ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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