UPS sees e-commerce driving growth

UPS appears to be getting a grip on e-commerce as its latest Q1 numbers illustrate an ability to grow volumes from ‘online retail’ customers combined with productivity increases.  

The US-based Express and logistics company saw revenue increase by a modest 3.2% but pre-tax profits jumped by 9.9% year-on-year. Unsurprisingly, this result was driven by the dominant US Domestic Express business which saw revenues up by 3.1% to US$9bn but operational profits 7.6% higher.

Volumes overall increased by 2.8%, with ‘Ground’ services growing slightly faster than the more expensive ‘Next-Day-Air’ services but both were driven by B2C e-Commerce demand. However, revenue per package fell by 1.3%, in part due to falls in fuel costs. What drove-up profits was what UPS called “network efficiency gains”, in other words it is working it assets harder.

This also appears to be the case with the ‘International Package’ business, where profits increased by 15% on a revenue that fell by 1.9% before currency adjustments and allowance for lower fuel costs. Again, it is productivity increases that have delivered the margin expansion, turning low increases in revenue into respectable increases in profit.

In its presentation around these results, UPS outlined its aspirations for internet retailing driven growth. It expects compound annual growth for domestic e-commerce in the US to grow at 3 times that of the rest of the economy, with cross-border e-commerce to grow at 7 times. At a global level it sees even faster numbers with cross-border traffic growing by 8 times, although it might be observed that the numbers so far are not quite as impressive as this.  

UPS’ other business are a little more troubled. Although supply chain and freight saw revenue growth of 10% its profits fell by 2.6% year-on-year. This may be due to problems in its freight forwarding and Freight LTL division (Less-than-Trailer Load) with UPS commenting that “weak market conditions in the Air Freight Forwarding and LTL markets weighed on top line growth”. In contrast the Coyote Logistics business drove the growth in revenue and presumably was profitable in doing so.

UPS appears to have firmly put its difficulties in managing internet retailing behind it, although admittedly its problems in previous years were focussed on the ability to control costs in managing surging Christmas volumes. It projections for online retailing growth appear to give grounds for optimism which if true, would suggest that UPS is set for a period of renewed growth despite the efforts of Amazon.  

Source: Transport Intelligence, 4th May 2016

Author: Thomas Cullen