The shipping carrier yesterday said its business with B2B companies increased by 3.4% in the third quarter despite a slowdown in industrial production, and that its B2B ecommerce is driving up demand for its Next Day shipping and other services.

United Parcel Service of America Inc. reported moderate growth for the third quarter, as revenue increased by 5% year over year to $18.32 billion. Although business-to-business shipments grew only 3.4%, they represent an important growth area for the shipping carrier, executives said.

“We are seeing B2B growth and our solutions continue to enable our customers to move faster—and it’s resonating,” Kate Gutmann, chief sales and solutions officer at UPS, said on a conference call yesterday with investment analysts, according to a transcript from Seeking Alpha. She noted that UPS’s Next Day delivery service, for example, is widely used by B2B companies as well as retailers.

UPS reported a 24% year-over-year increase in Next Day shipments, which it noted are driven in large part by online retailers. But “what gets lost in the mix is many of our large B2C shippers are also B2B shippers, and so that’s having a big effect there,” said David Abney, chairman and CEO. “But this trend is not just to the end consumer; I mean it is absolutely B2B at the same time.”

B2B Next Day shipments

Gutmann also noted that the 3.4% increase in overall B2B shipments came “despite some of the economic slowdown with industrial production,” and that more of Next Day air shipments involve B2B ecommerce and distribution to hospitals and other businesses.

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“What’s more, due to e-commerce structural changes, air volume continues to grow at near-historic levels,” Abney said. “And we expect demand to be strong during peak as Next Day delivery increasingly becomes the new standard for B2C and B2B ecommerce. Our preparations also include deeper collaboration with our customers.”

Ecommerce overall and in particular the increase in commerce on online marketplaces is providing “boundless opportunities” for UPS and its customers, Abney added. “Through our digital access program, we’re making it easier for small and mid-sized businesses to use UPS services by embedding our shipping solutions into leading ecommerce platforms.”

For example, he said, UPS recently signed a new agreement with Stamps.com, which features UPS as a preferred shipping partner for its more than 700,000 customers. “We have a presence on many other platforms and have more to come,” Abney said. “This strategy will enable UPS to increase our market share of high-quality B2C and B2B ecommerce packages.”

Amazon Impact

UPS is also getting more business from a shift to one-day shipping led by Amazon.com Inc., which has increased demand for next-day air service. Amazon is leaning more on UPS after FedEx didn’t renew U.S. delivery contracts with the online retailer.

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Squeezing more profit out of ecommerce remains a challenge, however.

“We believe a significant amount of the ecommerce volume is relatively low margin business picked up from a competitor,” Helane Becker, an analyst at Cowen & Co., said in a note to clients. While U.S. consumer demand remains strong, “our concern remains more on the higher-margin B2B segment which typically follows industrial production,” she said, referring to business-to-business parcels.

On Tuesday, UPS’s stock price fell as the sudden retirement of chief operating officer Jim Barber stoked leadership uncertainty midway through the company’s pricey revamp to handle surging shipments in B2B as well as retail ecommerce.

The shares fell 2.1% to $116.08 at 11:08 a.m. in New York on Tuesday after sliding as much as 5.7% for the biggest intraday decline in six months. UPS climbed almost 22% this year through Monday, slightly ahead of a 20% gain for a Standard & Poor’s index of U.S. industrial companies. FedEx slid 5.8% during the period.

Abney emphasized that Atlanta-based UPS still has a strong pool of skilled managers to guide the overhaul.

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“It’s really natural progression,” Abney said in an interview. “You’re going to have key leaders who are going to retire and it’s going to open up the door. We’ve got a very deep bench and I believe that it just opens up opportunities.”

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