E-commerce orders drove a 4.9% increase in average U.S. daily package volume and an 8.1% increase in U.S. domestic revenue in the second quarter ended June 30, United Parcel Service Inc. reported Thursday.
The carrier’s U.S. average daily package volume was 15.667 million, up 4.9% from 14.929 million in the same period a year ago. Ground volume, which is the bulk of UPS’ deliveries, increased 4.2% to 13.019 million packages from 12.489 million in Q2 2016.
Next Day Air volume rose 6.4% to 1.395 million from 1.311 million year over year, and Deferred Air average daily volume rose 11.0% to 1.253 million from 1.129 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.
Revenue per piece increased across all products, up 3.0% in total, as UPS said it benefited from increases to its base rate prices and from higher fuel surcharges compared with Q2 2016. UPS increased prices 4.9%, effective Dec. 26, for U.S. Ground, U.S. Air and International packages. Rival FedEx Corp. also increased its rates 4.9% on Jan. 2.
UPS, which is the shipping carrier for 421 retailers in the Internet Retailer 2017 Top 1000, in June announced peak season surcharges that will affect its retailer clients during the holidays. Most of the surcharges will take effect during the week before Christmas and range from 27-97 cents per package.
Alan Gershenhorn
“The peak season surcharge is really designed to compensate for the additional cost that we incur during peak with the volume increases, the temporary capacity enhancements that we need to meet the service levels,” chief commercial officer Alan Gershenhorn said Thursday on the carrier’s Q2 earnings call with analysts. “The surcharge is designed to hit the most impacted weeks where we surge in both residential and large packages. And so, for Ground, it’s three weeks of the five weeks of peak, and for Air, it’s only one week—the last week—and then for large package it’s five [weeks].”
International package volume increased 5.6% to 2.912 million from 2.758 million, driven by more demand for cross-border shipments, UPS said, and that segment is expected to increase. UPS also said it had its highest growth rate in Europe in Q2, though it didn’t specify that rate, and it likely was driven in part by cyberattacks on FedEx’s TNT Express unit that occurred in June.
David Abney
China is another market where UPS sees growth potential. “We are creating special cross-border services to support customers who want to sell to Chinese consumers via e-commerce,” CEO David Abney said Thursday, according to a SeekingAlpha transcript.
“These services, along with our recently announced joint venture with SF Express, will enable us to leverage the vast reach of both companies. We have plans to add competitive shipping products in more international lanes as we expand the SF partnership,” Abney said. SF Express Co. Ltd. is China’s biggest package-delivery company.
UPS continues to expand its network to handle the surge in e-commerce. “Earlier this year we stepped up our pace of investment to accelerate the most sweeping transformation of our network in decades. We are investing heavily in new capacity and connected technology to capture the tremendous e-commerce and international growth opportunities we see,” Abney said. “Our performance in the first half of the year strengthens our confidence that we are on the right track.”
“What we’re doing from an investment side is helping to support a flexible network ability to do more capacity, and it’s all part of the smart logistics network that we’re creating,” chief financial officer Richard Peretz said. “We feel very comfortable with the 7.5 million square feet that we have under construction and the announcement that somewhere between 28 million and 35 million square feet will be completed. We’re building this for the tremendous opportunity of e-commerce and how that’s moving shopping from physical stores to online.”
UPS in 2016 announced it was spending $400 million to build a 1.2 million square foot regional processing facility in Atlanta, $196 million to expand processing capacity in its Jacksonville, Fla., hub by 33%, and $175 million to double the processing capacity of its Columbus, Ohio, hub.
For the second quarter ended June 30, UPS also reports:
- Total revenue rose 7.7% to $15.750 billion from $14.629 billion in the second quarter of 2016. On a currency-neutral basis, revenue increased 8.9%, UPS said.
- U.S. domestic revenue increased 8.1% to $9.745 billion from $9.015 billion.
- U.S. ground shipment revenue grew 7.6% to $6.973 billion from $6.479 billion.
- Deferred Air revenue increased 13.5% to $1.020 billion from $899.00 million.
- Next Day Air revenue was up 7.0% to $1.752 billion from $1.637 billion.
- International revenue increased 2.8% to $3.163 billion from $3.077 billion.
- Net income of $1.384 billion, up 9.1% compared with $1.269 billion.
For the six months ended June 30, UPS reports:
- Total revenue rose 6.9% to $31.065 from $29.047 billion a year earlier.
- U.S. domestic revenue increased 6.5% to $19.280 from $18.099 billion.
- U.S. ground shipment revenue grew 6.1% to $13.874 from $13.073 billion.
- Deferred Air revenue increased 9.7% to $1.990 billion from $1.814 billion.
- Next Day Air revenue was up 6.4% to $3.416 billion from $3.212 billion.
- International revenue increased 3.8% to $6.221 billion from $5.991 billion.
- Net income of $2.542 billion, up 5.9% compared with $2.40 billion.