UPS released a comment on how much it was paying its drivers as a result of its new labour agreement with the Teamsters Union, which underlined how important both direct and indirect labour costs are to UPS. It also helped distract attention from a set of quarterly results which were underwhelming.
For the second quarter 2023 UPS saw its revenue fall year-on-year by 10.9% to US$22.1bn whilst operating profit fell by 21.4% to US$2.8bn.
There were sharp falls in volumes across UPS’ businesses. Volumes in its core North American Domestic Express business fell by 9.9%, although UPS was able to mitigate the impact of this by raising the revenue per piece by 3.3%. The result was an ‘adjusted’ profit down by 9.4%. It seems that the arguments between UPS and the trade unions over pay drove customers to diversify away from UPS over the past quarter and this may be an explanation for the fall in volume.
However, away from the US, volumes were also falling. The ‘International’ business saw volumes fall by 6.6% with traffic volumes in Asia flat-lining. This hit the results badly, with revenue down 13% and ‘adjusted’ operating profit down 25.1% year-on-year.
Even the ‘Supply Chain Solutions’ business suffered. Although UPS did not break-out the numbers, it seems the real hit was to the freight forwarding operations within Supply Chain Solutions, which the company said suffered from “soft global demand, especially out of Asia” that “drove down forwarding market rates and volume”. However, the contract logistics part of the business was strong, with “revenue and operating profit growth, including gains in our healthcare business”. Revenue for ‘Supply Chain Solutions’ fell 23.4% and ‘adjusted’ operating profit was down 35% year-on-year.
The level of demand picture at UPS Domestic Express may have been depressed by the threat of strikes however that does not explain the dismal conditions elsewhere in UPS’ markets. Freight forwarding seems to have suffered at least in-line with market trends but the performance of International Express was also markedly poor. Of course, these numbers still reflect the shaking-out of the impact of exceptional demand seen between 2020-2022, however it is also possible that they are indicators of a weakening trade picture, particularly in the trans-pacific market.
Author: Thomas Cullen
Source: Ti Insights
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