UPS Earnings Focuses on Value Share Growth Versus Volume Share Growth

October 30, 2020


Another impressive quarter as UPS earnings were reported to be 15.9% increase in consolidated revenue of $21.2 billion. Consolidated average daily volume increased 13.5% and operating profit was up 11.0% to $2.4 billion for the third quarter.

According to UPS earnings reports, volume is up but so are expenses

The largest division, US Domestic, reported average daily volumes up 13.8% on strong residential deliveries. Indeed, for the quarter, 61% of total volumes were B2C, increasing 34% year-over-year while B2B volumes declined almost 8%. However, expenses for the division were up 18.4% year-over-year and grew faster than volume and revenue. Cost per piece excluding fuel increased $0.37 or 4.4% over last year. This was due to costs associated with expanding weekend operations and speeding up the ground network. In addition, benefit expenses from the additional employees UPS hired in the second quarter, lower productivity gains than were planned and lower delivery density all contributed to cost increases.

According to UPS CEO, Carol Tome, industry analysts expect e-commerce sales to make up more than 20% of all U.S. retail sales this year. “We don't think the penetration of e-commerce retail sales will decline, even after the pandemic.”

To address this shift, UPS completed its weekend expansion ahead of schedule. According to the company, it is the only carrier that provides both commercial and residential pickup and delivery services on Saturdays as a general service offering.

UPS also improved ground transit times between a considerable number of ZIP codes. It also expects to be at parity or better than the competition in 20 of the 25 most populated U.S. markets.

Better not Bigger

As for its strategy of being better not bigger, UPS plans to focus more on high-yielding sectors such as small and medium sized businesses, freight forwarding and international. In addition, it plans to grow its revenue quality initiatives to optimize the volume that flows through its network.

As Tome noted on the UPS earnings call, a greater emphasis on efficiency will require the company to lower its cost to serve. This will include a significant reduction in capital expenditure spending in 2021.

The focus on profitable growth will continue through the holiday season despite concerns of industry-wide capacity constraints. However, UPS does not seem too concerned.

“When you have tight capacity, it also means that prices tighten. And as prices tighten there is a shift in certain customers who are more price-sensitive than others. We're okay with that if we're losing non-nutritive sales. We're okay with that. It's not about volume share growth. It's about value share growth.”  - Tome commented on the UPS earnings call.


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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UPS Earnings Focuses on Value Share Growth Versus Volume Share Growth

October 30, 2020


Another impressive quarter as UPS earnings were reported to be 15.9% increase in consolidated revenue of $21.2 billion. Consolidated average daily volume increased 13.5% and operating profit was up 11.0% to $2.4 billion for the third quarter.

According to UPS earnings reports, volume is up but so are expenses

The largest division, US Domestic, reported average daily volumes up 13.8% on strong residential deliveries. Indeed, for the quarter, 61% of total volumes were B2C, increasing 34% year-over-year while B2B volumes declined almost 8%. However, expenses for the division were up 18.4% year-over-year and grew faster than volume and revenue. Cost per piece excluding fuel increased $0.37 or 4.4% over last year. This was due to costs associated with expanding weekend operations and speeding up the ground network. In addition, benefit expenses from the additional employees UPS hired in the second quarter, lower productivity gains than were planned and lower delivery density all contributed to cost increases. According to UPS CEO, Carol Tome, industry analysts expect e-commerce sales to make up more than 20% of all U.S. retail sales this year. “We don't think the penetration of e-commerce retail sales will decline, even after the pandemic.” To address this shift, UPS completed its weekend expansion ahead of schedule. According to the company, it is the only carrier that provides both commercial and residential pickup and delivery services on Saturdays as a general service offering. UPS also improved ground transit times between a considerable number of ZIP codes. It also expects to be at parity or better than the competition in 20 of the 25 most populated U.S. markets.

Better not Bigger

As for its strategy of being better not bigger, UPS plans to focus more on high-yielding sectors such as small and medium sized businesses, freight forwarding and international. In addition, it plans to grow its revenue quality initiatives to optimize the volume that flows through its network. As Tome noted on the UPS earnings call, a greater emphasis on efficiency will require the company to lower its cost to serve. This will include a significant reduction in capital expenditure spending in 2021. The focus on profitable growth will continue through the holiday season despite concerns of industry-wide capacity constraints. However, UPS does not seem too concerned.
“When you have tight capacity, it also means that prices tighten. And as prices tighten there is a shift in certain customers who are more price-sensitive than others. We're okay with that if we're losing non-nutritive sales. We're okay with that. It's not about volume share growth. It's about value share growth.”  - Tome commented on the UPS earnings call.

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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