UPS Momentum Fueled by Holiday, Infrastructure Investments, and Global Deliveries
We watch the industry’s “big two” shippers to make sure we have the latest information to help you save on your parcel spend. In this post, we share a round-up of recent UPS® news, along with what you should watch for that may affect you.
Third quarter earnings released by the company in late-October show UPS beat profit estimates. With Thanksgiving under our belts, UPS leaders say they’re looking to the holidays and peak shipping season to continue fueling momentum.
In media interviews following earnings, Richard Peretz, UPS CFO, said the company expects to ship 700 million packages from Thanksgiving Day until year-end—an increase of 14 percent from 2015.
This year, the calendar works in favor of UPS and other parcel shippers as there are two more work days in 2016, which will drive more shipments. Plus, as reflected by the company’s earnings, demand continues to rise. UPS said it expects to ship 30 million packages a day for 60 percent of the days that fall between Thanksgiving and New Year’s. UPS anticipates Dec. 19 to be its busiest day.
This end-of-year momentum keeps with the boost in domestic packages the company saw in the third quarter. The UPS average package volume climbed 5.7 percent for the three months ending Sept. 30.
UPS took steps to ensure it had capacity to meet demand growth, and to make sure its team was ready for a busier holiday shipping season. The company opened or expanded 15 hubs nationwide, it increased delivery car opportunities by the thousands, plus UPS rolled out a new navigation system called Orion.
What to watch: Holiday 2016 may be a model for future years if UPS is profitable and achieves customer satisfaction success. Expect UPS—as well as FedEx®—to keep a close eye on what does and doesn’t work. Both companies will spend the first half of 2017 learning from their results and tweaking plans for next year.
The company’s global performance follows its domestic momentum. In the third quarter, UPS saw international operating profits grow 14 percent to $576 million—a company record.
UPS also reported that global parcel daily exports grew to 7.1 percent in the third quarter, compared to its near 4 percent growth in the second quarter. The company attributes this boost to double-digit percentage growth in Asia, along with more cross-border shipments in Europe.
What to watch: Expect UPS to continue growing its international presence with infrastructure investments like this announcement about its expanded Atlanta hub, or through partnerships with couriers services like TCS in Pakistan. This graphic shows how the company’s international revenue and operating profit have grown since 2000.1
The company bought 14 jumbo Boeing airplanes that it will receive in the 2017 to 2020 timeframe. UPS leaders say the 747-8 planes will largely fly intercontinental routes. The investment stems from the near 15 percent boost in air volume UPS has seen in the last few years.
The price of the new planes was not shared. But, media reports say the sticker price of the planes is $5.3 billion before Boeing discounts. The last time UPS invested in planes was 2008.
What to watch: UPS will likely use the new planes for international flights, and re-purpose its existing fleet for domestic operations. The 747-8F carries 16 percent more cargo than any current UPS plane, which will let the company make fewer international flights and ultimately, reduce costs.
2017 Rate Increases
Residential surcharges: will increase and make home deliveries more expensive. This change will be felt most by e-commerce and business-to-consumer shippers.
What to watch: There are three key takeaways from the company’s additional guidance on rates:
- Fuel charges: calculations will happen weekly, not monthly, allowing UPS to adjust faster to fluctuating fuel prices.
- Dimensional Weight Divisor: the “Dim Divisor” will shift from 166 to 139, which will subject more parcels to dimensional weight pricing. This will apply to packages measuring more than one cubic foot that move within the U.S., or into the U.S. from Canada.
- Residential surcharges: will increase and make home deliveries more expensive. This change will be felt most by e-commerce and business-to-consumer shippers.
Contact VeriShip to learn more about the momentum fueling UPS or how the company’s 2017 rate increase may impact your parcel spend.