Consultant’s Insight: UPS loses more volume than expected in Q2

UPS volumes took a hit during the second quarter as the company negotiated with the Teamsters for a five-year agreement. UPS average daily volumes for its domestic division declined 9.9% year over year, while its international division reported a 6.6% YoY decline. [caption id="attachment_68221" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] For the quarter ending June 30, UPS reported consolidated revenue of $22.1 billion, a 10.9% decline for the same quarter in 2022. Operating profit was $2.8 billion, down 21.4% YoY and down 18.4% YoY on an adjusted basis . “We are pleased to have reached an agreement with the Teamsters,” UPS Chief Executive Carol Tome said in a statement today. “UPS is stronger than ever. Looking ahead, we will stay on strategy to capture growth in the most attractive parts of the market and make our global integrated network even more efficient.” UPS stock ( NASDAQ:UPS ) dropped slightly following today’s earnings call. It ended today at $180.59 per share, a 0.86% fall from market open. Teamsters negotiations affect bottom line UPS cut its outlook for the rest of the year to “reflect the volume impact from labor negotiations and the costs associated with the tentative agreement reached with the International Brotherhood of Teamsters on July 25,” according to its Q2 earnings announcement released today. UPS now expects full-year 2023 consolidated revenue to be about $93 billion and an adjusted operating margin of around 11.8%. In its Q1 earnings announcement in April, UPS’ outlook for consolidated revenue was about $97 billion and consolidated adjusted operating margin was 12.8%. The volume impact of the contract negotiation was more than UPS expected. Volumes declined by 12.2% in June alone. During the quarter, an estimated 1.2 million packages were impacted by the negotiations. One million were diverted and the remaining 200,000 were impacted by UPS sales teams being unable to convert to wins because of the negotiation. UPS estimates that one-third of the diverted packages went to FedEx , one-third to the U.S. Postal Service and one-third to regional carriers. International ops stay depressed International conditions were worse than expected due to lower growth and declines in industrial production, UPS executives said in today’s earnings call. Asia exports declined 10.1% during the quarter and, while there was improvement in China exports to the U.S., those exports declined 7.1%. Executives also noted that UPS is quickly expanding in India and now has a 90% coverage of B2B opportunities in the country. Similar to what FedEx said on its earnings call in June, UPS also noted a shift to ground volumes from air volumes. While no explanation was given, this move is likely due to shippers managing costs more closely and not needing inventories or other items as quickly. Focusing on tech, partnerships The company said it is focused on winning back diverted volumes as well as increasing technology investments in its network. An estimated 57% of UPS package volume is now moving through automated hubs, up from 53% last year. UPS also plans to expand Saturday coverage and its use of SurePost , a B2C ground delivery service. During Q2, UPS redirected a little less than 40% of packages to SurePost services and was able to keep Sunday deliveries amid contract negotiations due to its use of SurePost, according to executives on the earnings call. Expect UPS to lean more heavily into technology, the use of SurePost and other services to mitigate costs from the tentative contract with Teamsters. Ratification is expected by the end of August. Join Air Cargo Next for its second annual Air Cargo Tech Summit on Sept. 18-19 in Brussels, sponsored by Unisys and Brussels Airport and featuring a fireside chat with Brian Hodges, managing director, American Airlines Cargo. For more details and to register, click here .

Consultant’s Insight: UPS loses more volume than expected in Q2

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