UPS to Remain Laser Focused on Productivity Gains and Revenue Quality

February 5, 2021


Record Q4 profits for UPS as it continued its march towards being “Better not Bigger”. Indeed, after its sell off of UPS Freight earlier this month, it will likely unload more unprofitable parts of its businesses this year. All bets are off on what could be next as UPS looks to tighten its financial belt and increase its profits.

“We are very pleased with the relationships that we have with our good customers,” Carol Tome, CEO of UPS said during its earnings call this week. Of course, they’re pleased with the relationships with their good customers. I mean, come on, they’re generating profits for Big Brown. Surcharges are playing a big role in these profits and helped to drive fourth quarter’s U.S. domestic revenue per piece year-over-year growth to 7.8%, the highest growth rate in more than 10 years.

While this year-over-year growth rate reflects peak surcharges, it also reflects a change in mix, as small and medium sized businesses (SMBs) which accounted for 64% of U.S. average daily volume growth in the quarter. SMBs are highly sought after because despite having less volume than larger customers, SMBs volumes often do not qualify for as many, if any, discounts in pricing like for larger customers and thus, equates in most situations to more revenue for UPS.

Besides pricing, productivity is also a part of their “Better not Bigger” strategy. For example, by the end of 2021, UPS expects that 88% of its packages will go through an automated assort. Also, for this year, UPS plans to expand or retrofit seven facilities equating to adding about two million square feet to handle 130,000 more packages per hour. Also, 11 new aircraft will be added to UPS’ expanding fleet to help support international demand.

Despite noting growth in large enterprise customers during the fourth quarter, up 80% year-over-year, a big concern for UPS, continues to be Amazon who not only remained UPS’ largest customer in 2020 but expanded its percentage of total revenue from 11.6% of total UPS revenue to 13.3% in 2020. This will pose a major risk for UPS as it continues to focus on profits. Any threat of Amazon pulling business from UPS will have an adverse effect on UPS’ financials.

In addition, while it’s uncertain how much UPS volume is attributed to Amazon, it’s likely a good bit and could be prohibitive for other customers in need of capacity.

For shippers, continue to expect not only regular surcharges but also peak surcharges to continue at least through the first half of the year when it’s likely that UPS could reevaluate peak surcharges. Because e-commerce growth is expected to remain strong, capacity constraints are likely and possibly limits on weekly pickups and equipment.

 


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 to Remain Laser Focused on Productivity Gains and Revenue Quality

February 5, 2021


Record Q4 profits for UPS as it continued its march towards being “Better not Bigger”. Indeed, after its sell off of UPS Freight earlier this month, it will likely unload more unprofitable parts of its businesses this year. All bets are off on what could be next as UPS looks to tighten its financial belt and increase its profits. “We are very pleased with the relationships that we have with our good customers,” Carol Tome, CEO of UPS said during its earnings call this week. Of course, they’re pleased with the relationships with their good customers. I mean, come on, they’re generating profits for Big Brown. Surcharges are playing a big role in these profits and helped to drive fourth quarter’s U.S. domestic revenue per piece year-over-year growth to 7.8%, the highest growth rate in more than 10 years. While this year-over-year growth rate reflects peak surcharges, it also reflects a change in mix, as small and medium sized businesses (SMBs) which accounted for 64% of U.S. average daily volume growth in the quarter. SMBs are highly sought after because despite having less volume than larger customers, SMBs volumes often do not qualify for as many, if any, discounts in pricing like for larger customers and thus, equates in most situations to more revenue for UPS. Besides pricing, productivity is also a part of their “Better not Bigger” strategy. For example, by the end of 2021, UPS expects that 88% of its packages will go through an automated assort. Also, for this year, UPS plans to expand or retrofit seven facilities equating to adding about two million square feet to handle 130,000 more packages per hour. Also, 11 new aircraft will be added to UPS’ expanding fleet to help support international demand. Despite noting growth in large enterprise customers during the fourth quarter, up 80% year-over-year, a big concern for UPS, continues to be Amazon who not only remained UPS’ largest customer in 2020 but expanded its percentage of total revenue from 11.6% of total UPS revenue to 13.3% in 2020. This will pose a major risk for UPS as it continues to focus on profits. Any threat of Amazon pulling business from UPS will have an adverse effect on UPS’ financials. In addition, while it’s uncertain how much UPS volume is attributed to Amazon, it’s likely a good bit and could be prohibitive for other customers in need of capacity. For shippers, continue to expect not only regular surcharges but also peak surcharges to continue at least through the first half of the year when it’s likely that UPS could reevaluate peak surcharges. Because e-commerce growth is expected to remain strong, capacity constraints are likely and possibly limits on weekly pickups and equipment.  


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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