UPS: 50% of business is now retail e-commerce

February 4, 2016 Ken Klaver

E-commerce drove UPS’s average daily package volume to 18.6 million, with the biggest growth in Next Day Air and Deferred Air delivery.

The growing influence of online retail generated UPS deliveries to 1.9 million new addresses in December, and more than half of shipments in the month were to residential customers, the delivery service reported Tuesday.

Strong demand from e-commerce shippers contributed to a 2.4% increase in average daily shipments in the fourth quarter ended Dec. 31, to 18.614 million packages from 18.186 million in Q4 2014, UPS said Tuesday. Ground package volume is UPS’s largest category, with an average daily volume of 15.32 million packages delivered in Q4, and it grew 0.4% compared with 15.26 million packages in the year-ago period.

But a surge in Deferred Air products led the growth in the U.S. domestic package category as average daily volume increased 14.8% to 1.78 million packages from 1.55 million a year ago. Deferred air freight is used for lower-priority packages that can ship on a space-available basis and it costs less than standard air freight. Next Day Air also posted double-digit growth, up 10.1% to average daily volume of 1.52 million packages from 1.38 million a year ago.

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In December, more than 60% of UPS deliveries were to residential customers,chief financial officer Richard Peretz said on the quarterly call with analysts Tuesday, according to a Seeking Alpha transcript. Increases in Deferred Air and Next Day Air illustrate that “UPS customers are choosing the value of our air products to meet their customers’ expectations. Both business and residential deliveries grew in the quarter with B2C outpacing B2B two to one,” he said.

About half of UPS’s business is now retail e-commerce, chief commercial officerAlan Gershenhorn said on the call.

For the year, UPS said average daily package volume rose 1.8% to 15.60 million from 15.32 million in 2014. Ground shipments increased 0.6% to 12.97 million from 12.89 million in average daily volume. Deferred Air also jumped for the year, up 13.7% to 1.313 million from 1.155 million, while Next Day Air increased 3.3% to 1.316 million from 1.274 million.

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“The explosive growth of e-commerce continues to create great opportunity,”CEO David Abney told analysts. “UPS implemented certain pricing controls and maintained disciplined operating plans to ensure our peak package value did not jeopardize the overall integrity of the network and could be delivered on time. For example, we optimized available capacity during the weekend prior to Christmas and collaborated with customers to tender shipments ahead of the original schedule. This moved our peak day up to Dec. 21 and smoothed volume for the rest of the week, ensuring our customers’ packages reached their customers’ doorsteps before Christmas.”

For the fourth quarter ended Dec. 31, UPS reported:

  • U.S. ground shipment revenue grew 2.0% to $7.26 billion from $7.12 billion in the same quarter of 2014.
  • Deferred Air revenue increased 7.0% to $1.246 billion from $1.165 billion.
  • Next Day Air revenue was up 2.4% to $1.760 billion from $1.719 billion.
  • U.S. domestic package revenue increased 2.6% to $10.265 billion from $10.004 billion.
  • International revenue declined 7.3% to $3.18 billion from $3.43 billion.
  • Total revenue increased 1.0% to $16.054 billion from 15.895 billion.
  • U.S. revenue per package was up 0.2% to $8.89 from $8.87, held flat because of changes in fuel surcharges and customer mix, UPS said.
  • Net income increased 193.8% to $1.33 billion from 453.0 million.

For the year ended Dec. 31, UPS reported:

  • U.S. ground shipment revenue grew 2.6% to $26.274 billion from $25.598 billion compared with 2014.
  • Deferred Air revenue increased 6.3% to $3.903 billion from $3.672 billion.
  • Next Day Air revenue slipped 0.2% to $6.570 billion from $6.581 billion
  • U.S. domestic package revenue increased 2.5% to $36.747 billion from $35.851 billion.
  • International revenue fell 6.5% to $12.15 billion from $12.99 billion.
  • Total revenue grew 0.2% to $58.36 billion from $58.23 billion.
  • U.S. revenue per package increased 0.3% to $9.28 from $9.25.
  • Net income increased 59.8% to $4.844 billion from $3.032 billion.

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