UPS’ profits edge higher in weakening market, especially forwarding

UPS announced its Q3 numbers on Tuesday 25th. They were more-or-less in line with the trends seen over the past year or so, with falls in volumes but hardening prices leading to higher profits.

At the core US Domestic Express business average daily volumes declined by 1.5% over the quarter, led by a 2.2% fall in ‘business-to-consumer’ consignments, illustrating that e-commerce is still shrinking. UPS said B2C volumes “declined 2.2% driven by contractual agreements reached with certain enterprise customers”. Yet UPS was still able to increase prices, with revenue per piece growing 9.8% resulting in an increase in revenue of 8.2% to US$15.4bn. However, costs dampened down increases in operating profits leading to an increase of $259m to $1.666bn. The International Express business saw a harsher trajectory in market terms, with volumes down 5% compounded by revenues being hit by the strength of the US Dollar. The result was slight falls in both revenue and operational profits.

Supply Chain Solutions had a different experience. Here Revenue fell by 6.3% due to what must have been a dramatic softening of the market for both air and sea freight forwarding. However operating profits rose by 6%. UPS said that the falls in profits in the forwarding business was “offset by growth in our logistics and healthcare businesses”.

For the whole of UPS revenues were up year-on-year by 4.2% at $24.2bn whilst operating profits were 7.5% higher at $3.1bn.

Although these results were well received, they do confirm that the markets in general are slowing. Much of the reasons for sustained profitability at UPS lie in good operational management. The demand picture is softening, or as Carol Tome, UPS’ CEO described it “the macro environment is very dynamic”. The question is, will the weakening economy finally have an effect on UPS’ profitability, for example by limiting the Express carriers ability to increase prices. Indeed, many shippers still complain that Express prices are too high.

Source: Transport Intelligence, 28th October 2022

Author: Thomas Cullen