E-commerce orders kept United Parcel Service Inc. busy in the third quarter and are expected to hit record levels this holiday season.
Deliveries between Thanksgiving and Dec. 31 are projected to top 700 million, a 16.7% jump compared to about 600 million last year, UPS said. “The dramatic growth of online shopping and subsequent returns is expected to lift UPS package levels to a record high during this upcoming holiday period,” Kathleen Gutmann, senior vice president of worldwide sales and solutions, said Thursday during a call on UPS’s third quarter earnings. “Between Thanksgiving and New Year’s Eve 2016, there are two additional operating days and we expect to complete over 700 million deliveries worldwide, about 100 million more than last year.”
Coyote Logistics, a transportation and shipping services provider that UPS bought in August 2015, will support UPS domestic operations throughout the holidays, Gutmann said. UPS will also rely on the automation and expansion programs at its regional sorting hubs, including temporary facilities, that it has been building up to handle the heavy volumes, she said.
The UPS My Choice program is another channel UPS plans to lean on to help it manage holiday volume surges. The program enables consumers who sign up to choose the delivery location of their package, whether to their home or an alternate delivery site, including a UPS Access Point location. The parcel pickup program has 30 million members worldwide heading into this holiday season compared with 20 million a year ago, Gutmann told analysts on the call. UPS has about 8,000 Access Point locations in the United States, and they include UPS stores, Access Point “smart” lockers and other sites such as convenience stores and dry cleaners.
For the third quarter ended Sept. 30, UPS said U.S. average daily package volume increased 5.7% to 15.364 million packages from 14.540 million in Q3 2015.
“The U.S. Domestic business produced higher-than-anticipated package volume, driven by strong demand for our portfolio of e-commerce solutions,” CEO David Abney told analysts.
Average U.S. revenue per package was flat in the quarter, at $9.45 per package compared with $9.37 in the year-ago quarter.
International package volume increased 7.5% to 2.788 million from 2.593 million year over year.
Despite lower industrial production, business-to-business grew roughly 2% primarily due to online retail returns, UPS said. “It’s the best growth we’ve had there in five quarters,” chief financial officer Richard Peretz said on the call, according to a Seeking Alpha transcript. “Returns growth in e-commerce is also very strong. It’s growing in the mid-teens.”
E-commerce customers drove higher daily shipments across all UPS services “from high-single-digit growth in Air products to a 20% jump in our most economical product, SurePost,” Peretz said. SurePost is a program in which UPS hands off parcels to the U.S. Postal Service for final delivery to consumers. UPS has said it will announce rate increases for SurePost on Nov. 18. In early September the carrier said rates on most packages will increase 4.9%, effective Dec. 26.
For the third quarter ended Sept. 30, UPS also reported:
- Total revenue rose 4.9% to $14.928 billion from $14.237 billion in the third quarter of 2015. On a currency-neutral basis, revenue increased 5.1%, UPS says.
- U.S. domestic revenue increased 4.8% to $9.289 billion from $8.860 billion.
- U.S. ground shipment revenue grew 4.8% to $6.616 billion from $6.315 billion.
- Deferred Air revenue increased 9.5% to $967 million from $883 million.
- Next Day Air revenue was up 2.6% to $1.706 billion from $1.662 billion.
- International revenue increased 2.2% to $3.024 billion from $2.959 billion.
- Net income increased 1.0% to $1.270 billion from $1.257 billion.
For the nine months ended Sept. 30, UPS reported:
- Total revenue rose 3.9% to $43.975 billion from $42.309 billion in the third quarter of 2015.
- U.S. domestic revenue increased 3.4% to $27.388 billion from $26.482 billion.
- U.S. ground shipment revenue grew 3.5% to $19.689 billion from $19.015 billion.
- Deferred Air revenue increased 4.7% to $2.781 billion from $2.657 billion.
- Next Day Air revenue was up 2.2% to $4.918 billion from $4.810 billion.
- International revenue increased 0.5% to $9.015 billion from $8.974 billion.
- Net income increased 4.5% to $3.670 billion from $3.513 billion.