UPS hit by cheaper e-retail business

UPS

UPS’ core express business has changed direction but that has not led to higher profits. In the company’s just released second quarter results there are signs that demand for e-retail related services is increasing but not in a good way.

At UPS’ US Domestic Express business, the company said that average daily volume in the second quarter had increased “for the first time since the fourth quarter of 2021”. The focus of this growth was UPS Ground, with the ‘Surepost’ product seeing a 25% increase in volumes. In contrast the ‘Business-to-Business’ market segment saw volumes fall. Despite the increase in overall volumes, revenue per piece handled fell by 2.6% in the second quarter. The reasons for this decline were complex but UPS blamed a “combination of product mix, lighter weights and shorter zones”. The result was a shrinking of profit margins from 11.7% to 7.1%, in turn leading to a fall of 40.7% in ‘adjusted operating profit’ to $997m. The reverse seems to be happening in the ‘International’ express business. Here volumes fell by 2.9%, yet revenue only edged downwards by 0.1% year-on-year.

What seems to be happening in the express market is a shift towards cheaper services, at least in the US. Some speculate that this is being driven by the growth of the Chinese internet retailers, Shien and Temu, the customers of which are buying lower priced delivery services. If true this is obviously not good for UPS.

UPS’ other business, UPS SCS, also saw falls in profits with adjusted operating profit down 27.7% despite a 2.6% rise in revenue. The division saw a marked mix of performance, with airfreight forwarding seeing a strong market, again driven by e-retail, yet seafreight forwarding experiencing falling revenue and volume. Contract logistics continued to be strong but freight brokerage business, which UPS has agreed to sell, was under pressure.

For the quarter UPS saw ‘consolidated revenues’ down 1.1% to $21.8bn whilst ‘consolidated operating profit’ was down 30.1% at $1.9bn.

These results are interesting but possibly for the wrong reasons. They seem to confirm that the trends in the e-retail market place are damaging for UPS, with the boom in Chinese e-retailers pushing rates down despite a jump in demand in volume terms. UPS seems to be having problems positioning itself in the rapidly changing global express market.

Author: Thomas Cullen

Source: Transport Intelligence

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