E-commerce sends UPS package volume and spending higher

As reported by Internet Retailer.
Thursday February 2,2017

Parcel volume increased 7.1% in Q4 and 4.6% for 2016. In December, as holiday online orders surged, a record 63% of UPS deliveries were to residential customers.

E-commerce growth again pushed package volumes higher for United Parcel Service Inc. in the fourth quarter and for all of 2016.

Package deliveries during the fourth quarter increased 7.1% to 1.433 billion packages from 1.338 billion in the same quarter of 2015. During the high-volume holiday period of Thanksgiving (Nov. 24) through Dec. 31, UPS delivered more than 712 million packages globally, a record and a 16% increase from the 2015 holiday period. For the full year, package volume rose 4.6% to 4.868 billion from 4.654 billion in 2015.

“In the U.S., we completed investments that enabled our network to respond with on-time service, even with this record-setting volume. However, during the quarter, we experienced a significant shift in mix toward lower revenue products. This, combined with the cost of facility investments yet to come online, weighed on our Q4 results,” CEO David Abney told analysts during the earnings call, according to a SeekingAlpha transcript. The carrier’s profit forecast missed analysts’ expectations and its stock on Tuesday fell the most in two years, dropping more than 6%, and it continued to decline slightly Wednesday and Thursday.

Shipments to consumers, which often are lower-revenue products than business-to-business parcels, increased 11.5% in the quarter ended Dec. 31 and accounted for 55% of UPS volume in that period, chief financial officer Richard Peretz said. In December, B2C shipments accounted for 63% of volume, a new high, he said.

Ground shipment volume increased 5.4% in the quarter, driven by a more than 25% jump in SurePost volume, Peretz says, though he did not specify SurePost numbers and UPS does not break them out. SurePost is a program in which UPS hands off parcels to the U.S. Postal Service for final delivery to consumers. UPS is the shipping carrier for 193 retailers in the Internet Retailer 2016 Top 500 Guide.

“We also delivered to an additional 2.5 million new addresses this quarter,” Peretz said. “These UPS records demonstrate the expanding reach of e-commerce, which comes with great opportunities and some challenges.”

UPS is in the middle of an approximately five-year plan to further automate its sorting centers and other facilities, and much of that automation capacity comes online next year and through 2020, said Myron Gray, president of U.S. operations. UPS said it will spend about $4 billion in 2017 to keep pace with demand, an increase from $3 billion or less in recent years.

“Thus far, it seems like e-commerce has generated problems equal to benefits,” Logan Purk, an analyst at Edward Jones, said. “This has been a ghost that has been haunting UPS for a few years, and that’s how to move all this volume profitably.”

For the fourth quarter ended Dec. 31, UPS also reported:

  • Total revenue rose 5.5% to $16.931 billion from $16.054 billion in the fourth quarter of 2015.
  • U.S. domestic revenue increased 6.3% to $10.913 billion from $10.265 billion.
  • U.S. ground shipment revenue grew 7.1% to $7.778 billion from $7.259 billion.
  • Deferred Air revenue increased 4.4% to $1.301 billion from $1.246 billion.
  • Next Day Air revenue was up 4.2% to $1.834 billion from $1.760 billion.
  • International revenue increased 5.0% to $3.335 billion from $3.175 billion.
  • Net loss of $239 million compared with net income of $1.33 billion a year ago, which UPS says is due to $1.67 billion in charges related to its defined benefit plan.

For 2016, UPS reported:

  • Total revenue rose 4.4% to $60.906 billion from $58.363 billion in the third quarter of 2015.
  • U.S. domestic revenue increased 4.2% to $38.301 billion from $36.747 billion.
  • U.S. ground shipment revenue grew 4.5% to $27.467 billion from $26.274 billion.
  • Deferred Air revenue increased 4.6% to $4.082 billion from $3.903 billion.
  • Next Day Air revenue was up 2.8% to $6.752 billion from $6.570 billion.
  • International revenue increased 1.7% to $12.350 billion from $12.149 billion.
  • Net income declined 29.2% to $3.431 billion compared with $4.844 billion in 2015, which UPS says is due to $1.67 billion in charges related to its defined benefit plan.

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Ken Wood is the founder of LJM Consultants. LJM helps clients negotiate “Best in Class” UPS/FedEx agreements. LJM was recently named the “best parcel auditing company in America” and was also inducted into Inc. Magazine’s Top 500/5000 fastest growing companies in America for 2013. To learn how LJM Consultants can help your company get the parcel contract you deserve, call 631-844-9500 or email kenwood@myLJM.com.