Improving European economy helps UPS volumes grow

Evidence of economic improvement in Europe was noted in UPS’ third quarter earnings announcement. For the quarter, total revenue increased 3.4% to US$13.5bn while operating profit improved to $1.8bn. This increase in total revenue was attributed to not only US e-commerce but also to European export shipments which were up almost 10.0%.

However, despite the good increase in European export shipments, total International package export revenue per piece declined 5.4% because of the shift towards deferred products, lower fuel surcharges and changes in trade lane mix, particularly shorter trade lanes. Overall, International Domestic Package had a 2.5% increase in revenue of $3.0bn. As noted previously, European exports led this increase.

Growth out of Asia was flat which may be because of the overall anaemic health of the Asian economy however; Canada and Mexico export shipments were strong. Non-US domestic volume also appeared strong for the quarter, up 6.3% led by Canada and Europe. Within intra-Europe, Turkey and Poland were both up 20%.

Meanwhile, US Domestic Package revenue increased 5.0% to $8.3bn while operating profit increased 16% to $1.2bn. B2C and B2B e-commerce were attributed to the 2.3% growth in US domestic volume versus third quarter 2012. While volume increases helped the overall revenue growth, cost reductions and an additional operating day contributed as well. Next day air volume declined 3.3% because of declining letter shipments. Also, UPS noted some shippers had moved their distribution facilities closer to their customers which also slowed air shipment growth but led to a greater use of UPS Ground facilities.

UPS’ Supply Chain and Freight division fared reasonably well. Although revenue was down slightly by almost 1.0% to $2.25bn, operating profit increased 7.0% to $201m. UPS Freight reported revenue increasing 8.7% because of a recent rate increase and “improved” tonnage. The Forwarding and Distribution groups’ improved operating profits but revenue declined for both. For the Forwarding group, ocean forwarding, North America air freight and brokerage appeared to have experienced a good quarter whereas the Distribution group noted growth in its healthcare and mail services despite a decline in high tech.

Thanks to improving volumes in Europe, UPS Freight and Ground along with rate increases and cost management initiatives, UPS reported a good quarter. According to Kurt Kuehn, UPS Chief Financial Officer, “Third quarter results were strong and in line with our expectations. Looking to the fourth quarter, although some major retailers have expressed caution about holiday spending, they still expect robust online sales.” In fact, the company is not only upbeat for fourth quarter but also optimistic about the upcoming season and expects peak season daily volume to increase by 8%.