Presenting an operating profit growth of 3.3% y-o-y to $1,666m on revenue decline of 0.7% to $21,546m, UPS CEO Carol Tomé said that for 2024, “We continue to model different scenarios but these are just scenarios. The world hasn’t been faced with such enormous potential impacts to trade in more than one hundred years. So the only thing we’re certain of is we don’t know which if any of our scenarios will play out.”
As a company, while overall average daily volume (ADV) met expectations, Tomé said that month by month they did not follow the expected course: “Starting with The U. S, while we expected negative ADV growth given our Amazon glide down plan, January’s ADV decline was less than expected, marked by positive average daily volume or ADV growth in certain B2B, SMB, and healthcare customers. Then as we moved into February and March, uncertainties surrounding global trade policies and other matters led to a drop in consumer confidence, and muted demand from some enterprise and SMB customers. As a result, the decline in U. S. ADV for the month of February and March was higher than we expected.”
Domestic Package profit up 17.5%
On revenues that improved 1.4% y-o-y to $14,460m, operating profit at the Domestic Package segment increased 17.5% to $979m. While volumes for all segment products fell, revenue per piece improved for two of the three:
– Next Day Air volumes decreased 4.4% y-o-y but revenue per piece improved 8.3% to $25.05
– Deferred volumes fell 17.3% y-o-y but revenue per piece improved 11.5% to $19.54
– Ground volumes fell 2.5% y-o-y but revenue per piece improved 3.6% to $11.47
Consequently, in most cases the revenue per piece offset the volume drop. As well as a major strategic change programme taking place at the company, UPS is looking at its contracts, among which is the unprofitable one with Amazon. Tomé continued, “We reached agreement with Amazon to reduce their volume in our network by more than 50% by June of 2026. Note that the volume we are transitioning out is Amazon’s fulfilment centre outbound volume. This volume is not profitable for us, nor a healthy fit for our network. The Amazon volume we plan to keep is profitable and it is healthy volume, in other words, volume where we can add value like returns, and seller fulfilled outbound volume.”
International Package volumes up, revenue per piece down
Revenue at the International Package segment was up 2.7% y-o-y to $4,373m while operating profit fell 2.3% to $641m. International Domestic volumes were up 4.8% y-o-y while revenue per piece fell 1.4% to $7.90. International Export volumes again grew, this time by 9.3% y-o-y, offsetting a revenue per piece fall of 4.4% to $31.37.
Brian Dykes, UPS CFO explained, the operating fall was “Due to a mix shift to more economy services in Europe lower demand related surcharges, and investments we are making to expand weekend services in Europe.”
Supply Chain Solutions falls in profit and revenue
While the divestment of Coyote Logistics helped the Supply Chain Solutions revenue decline by 14.8% y-o-y to $2,713m, the change in relationship with the US Postal Service hit operating profit which fell by 62.9% $46m. Dykes continued, this was “Primarily driven by cost pressure in our Mail Innovations business. This is a postal injection product and our contract with the USPS Expired at the end of 2024. The new rates from the USPS are causing short term cost pressure which we expect to address as we make adjustments to that business.”
Forecast: the only certainty is uncertainty
As we reported Tomé saying earlier on in this piece, the new international trade policies held by the US government are causing a high level uncertainty for UPS’s leadership. Trade lanes from China are UPS most profitable product but the flames of trade war between the US and China are well ablaze. Saying that these trade lanes are worth 17% of international revenues and 3% of overall revenues, Tomé added, “In The US, we’ve talked with our top 100 customers to understand how their business is being impacted both directly and indirectly by changes in trade policy. These customers have told us that they are exploring various options to address the tariff from absorbing the cost to pushing them into retail prices to asking suppliers help defray the expense.”
Thousands of customers outside of the US involved in imports into the country have been consulted, and Tomé continued, “For small package shippers, over 95% of those customers have told us that they expect to maintain their current business models, while the rest are considering several options, including trade shifts, transportation mode shift, or exiting a business. Most of these customers are also telling us that they are letting inventory levels sell off which will lead to lower shipping activity at least for now. Freight forwarding customers are telling us that where they can, they are looking to move from air freight to ocean freight.”
For an international logistics player like UPS, the huge shifts in trade policy are a headache that won’t be resolved until and if the grand plans of domestic policymakers come to fruit. Until it all settles down, nothing is certain – for UPS’s customers or its bottom line.
Author – Richard Shrubb
Source: Ti Insight
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