(Bloomberg)—United Parcel Service Inc.’s effort to cash in on surging e-commerce will have to wait as the courier ramps up spending to boost efficiency and capacity.
The domestic package unit earned 11 cents for every dollar of sales in the second quarter, down from about 13 cents a year earlier, UPS said Wednesday as it reported earnings. The tighter profit margin underscored the courier’s heavy investments to cut the costs of home deliveries, which are weighing on UPS’s trademark efficiency because drivers typically handle fewer parcels per stop with them.
UPS is deploying tools such as warehouse automation and software that finds the fastest route for delivery vans as it rushes to lower the cost of home deliveries and reap the gains from record demand. The company announced plans earlier this year to spend an extra $7 billion through 2020 on new planes, labor-saving technology and other infrastructure to make its network more efficient.
“UPS is making great progress on our transformation initiatives to enhance profitable growth and improve operating leverage,” CEO David Abney said in a statement.
UPS is stepping up investment to increase automation, buy cargo planes and build sorting facilities as it seeks to navigate a changing competitive landscape. The courier invested $2.8 billion in the first half in such projects. Amazon.com Inc., a major customer of UPS and No. 1 in the Internet Retailer 2018 Top 500, recently announced plans to begin a delivery network to handle more of its own packages.
As competition heats up, UPS is trying to add flexibility in a new five-year contract with the Teamsters union by creating a class of driver that would work weekends. The company began Saturday pickup and deliveries last year and is looking to add Sunday operations.
UPS and the union have reached an agreement in principle and agreed to extend the current contract past this month’s expiration date to allow more time to negotiate side agreements with individual locals.Favorite