UPS Stresses Value in Its Update to Investors

June 10, 2021


UPS' annual investor and analyst virtual conference highlighted anticipated promising financial expectations, efficiency achievements, and market share gains as the company continues its shift from volume to value-focused.

Ahead of the virtual conference, UPS issued a press release outlining its 2023 financial targets:

  • Consolidated revenue from $98 billion to $102 billion.
  • Consolidated adjusted operating margin from 12.7% to 13.7%.
  • From 2021 to 2023, total capital spending of $13.5 billion to $14.5 billion.
  • Adjusted return on invested capital (ROIC) from 26% to 29%.

Rest assured, CEO Carol Tome, former CFO of Home Depot, will hold the company to these targets as it continues to cut the fat and utilize assets more efficiently.

"Not all packages are attractive to us," Tome said.

Indeed not, the company is doubling down on its focus of key segments – small & medium-sized businesses (SMBs), healthcare, and international.

A year has passed since Tome became UPS's CEO, and since then, she has led a charge to reinvent and update UPS to address an economy that is quickly becoming more digital.

As such, the company has introduced several self-serve portals for billing, claims, booking and tracking domestic and international shipments, customs documentation assistance, inventory management, and more – all designed to reduce the time for the shipper going back and forth with a UPS account representative via emails and phone calls and reduce costs for UPS.

US Domestic Division

UPS' largest division, US Domestic, will continue to play a significant role in UPS' growth plans. As part of the company's overall margin expansion target, US Domestic is expected to represent the largest contribution, with adjusted operating margin growing from 7.7% in 2020 to 12.0% in 2023.

Rate increases and growth from SMBs will generate about half of the margin, according to UPS executives.

Peak surcharges on top of existing surcharges will continue indefinitely for domestic as well as international shipments as a means to "manage volumes." Tome noted that "volumes can choke a network."

UPS is also expanding its weekend deliveries with expectations of a 46% increase in volumes, and by October, it expects to cover 90% of the US population on Saturday deliveries.

Sunday deliveries will focus on Surepost in order to create additional capacity without adding additional capital expenditures. However, for SurePost and UPS packages destined to the same location, UPS will continue to intercept and deliver themselves instead of the USPS.

In addition, streamlining operations will also help towards margin expansion. Through the use of technology and data analysis, the company cited several efficiency improvements within its US operations, including:

  • Reducing package selection time for drivers by up to 25%
  • A 10% improvement in cube utilization for loading vehicles
  • Packages per direct labor hour were flat during Q1 despite increased B2C volumes
  • Automation reduced handles by 7.6% on volumes through 17 of its largest hubs in February

Shippers pay the price

Shippers will certainly benefit from improved operational enhancements and self-serve portals and dashboards. However, they will continue to pay for these improvements.

As part of its financial platform, UPS is "optimizing pricing for each customer to align with cost to serve with the value we create," CFO Brian Newman said in his presentation. In addition, Newman noted that the company will leverage technologies such as AI to adjust pricing in a more dynamic manner to maximize UPS profitability.

Shippers should exercise their options and diversify carriers to not depend on such measures that UPS is undertaking.

The growth in e-commerce is having a major impact on the last mile. Diversification of carriers, curbside pickups, lockers are just a few of the options shippers have to mitigate shipping costs.


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 Stresses Value in Its Update to Investors

June 10, 2021


UPS' annual investor and analyst virtual conference highlighted anticipated promising financial expectations, efficiency achievements, and market share gains as the company continues its shift from volume to value-focused. Ahead of the virtual conference, UPS issued a press release outlining its 2023 financial targets:

  • Consolidated revenue from $98 billion to $102 billion.
  • Consolidated adjusted operating margin from 12.7% to 13.7%.
  • From 2021 to 2023, total capital spending of $13.5 billion to $14.5 billion.
  • Adjusted return on invested capital (ROIC) from 26% to 29%.
Rest assured, CEO Carol Tome, former CFO of Home Depot, will hold the company to these targets as it continues to cut the fat and utilize assets more efficiently. "Not all packages are attractive to us," Tome said. Indeed not, the company is doubling down on its focus of key segments – small & medium-sized businesses (SMBs), healthcare, and international. A year has passed since Tome became UPS's CEO, and since then, she has led a charge to reinvent and update UPS to address an economy that is quickly becoming more digital. As such, the company has introduced several self-serve portals for billing, claims, booking and tracking domestic and international shipments, customs documentation assistance, inventory management, and more – all designed to reduce the time for the shipper going back and forth with a UPS account representative via emails and phone calls and reduce costs for UPS.

US Domestic Division

UPS' largest division, US Domestic, will continue to play a significant role in UPS' growth plans. As part of the company's overall margin expansion target, US Domestic is expected to represent the largest contribution, with adjusted operating margin growing from 7.7% in 2020 to 12.0% in 2023. Rate increases and growth from SMBs will generate about half of the margin, according to UPS executives. Peak surcharges on top of existing surcharges will continue indefinitely for domestic as well as international shipments as a means to "manage volumes." Tome noted that "volumes can choke a network." UPS is also expanding its weekend deliveries with expectations of a 46% increase in volumes, and by October, it expects to cover 90% of the US population on Saturday deliveries. Sunday deliveries will focus on Surepost in order to create additional capacity without adding additional capital expenditures. However, for SurePost and UPS packages destined to the same location, UPS will continue to intercept and deliver themselves instead of the USPS. In addition, streamlining operations will also help towards margin expansion. Through the use of technology and data analysis, the company cited several efficiency improvements within its US operations, including:
  • Reducing package selection time for drivers by up to 25%
  • A 10% improvement in cube utilization for loading vehicles
  • Packages per direct labor hour were flat during Q1 despite increased B2C volumes
  • Automation reduced handles by 7.6% on volumes through 17 of its largest hubs in February

Shippers pay the price

Shippers will certainly benefit from improved operational enhancements and self-serve portals and dashboards. However, they will continue to pay for these improvements. As part of its financial platform, UPS is "optimizing pricing for each customer to align with cost to serve with the value we create," CFO Brian Newman said in his presentation. In addition, Newman noted that the company will leverage technologies such as AI to adjust pricing in a more dynamic manner to maximize UPS profitability. Shippers should exercise their options and diversify carriers to not depend on such measures that UPS is undertaking. The growth in e-commerce is having a major impact on the last mile. Diversification of carriers, curbside pickups, lockers are just a few of the options shippers have to mitigate shipping costs.

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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