Consultant Insight: UPS’ agile network proves beneficial in slowing global economy

UPS’ agile network benefited the company as the global macro environment softened during Q3. Third-quarter consolidated revenue rose 4.2% from last year to $24.2 billion, and operating profit grew 6% year over year to $3.1 billion, according to UPS’ earnings report released Monday. Consolidated operating margin expanded to 13% YoY, a 20-basis-point improvement from 2021. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Revenue for the International segment increased 1.7% YoY to almost $4.8 billion while operating profit in the segment clocked in at $1 billion, which included an $82 million negative impact from currency and was down 9.4% YoY. International average daily volumes dipped 5.2% YoY, with total export average daily volume declining 0.6% YoY. Lockdowns and disruptions to manufacturing output resulted in UPS canceling 75 China and Hong Kong origin flights and rerouting 27 of the flights to Europe to support exports from that region. As such, in Q3 the total Europe export average daily volume grew by 0.6% YoY and transborder average daily volume increased 2.6% YoY. “At the beginning of the quarter, we expected the International average daily volume growth rate to improve compared to the first half of 2022, and it did,” UPS Chief Financial Officer Brian Newman said during the company’s Q3 earnings call. “However, it did not improve as much as anticipated due to continued macro softening.” Average daily volumes Europe was the bright spot in terms of average daily volume. International average volumes declined 5.2% YoY in the third consecutive quarter of declines, and International Domestic volumes dropped 9.4% YoY while International Exports fell 0.6% YoY. Revenue per piece grew during Q3, but at a slower rate than previous quarters. Compared with Q3 2021, International Domestic revenue per piece increased by 1.7%, International Exports was up 3.6%, and total revenue per piece for the segment climbed 6.4%. The International segment revenue per piece increased by 9.4% and 10.8% YoY, respectively. Supply Chain Solutions Meanwhile, the Supply Chain Solutions segment reported a 6.3% YoY decline in revenue for Q3 to $3.9 billion. Adjusted operating profit increased 2.4% YoY to $459 million, resulting in a record Q3 operating margin of 11.5%. “Our teams continued to navigate a dynamic macro environment in the third quarter and did an excellent job serving our customers and managing costs,” Newman said. The volumes and market rates decline in the freight forwarding group were attributed to the reduced revenue and operating profit. “However, the team managed to buy and sell spreads effectively and continued supporting our customers,” he added. The truckload brokerage unit — the former Coyote Logistics, acquired by UPS in 2015 and incorporated into freight forwarding — posted operating profit driven by revenue quality initiatives. Flexing its network Looking ahead to Q4, UPS said it will guide growth through revenue-management initiatives and continue to flex its network as demand declines or increases unexpectedly in any given geographic region. Within the Supply Chain Solutions segment, growth in logistics and UPS’ health care business is expected to help offset declines in freight forwarding. Air and ocean market rates are on the decline and likely will continue into the fourth quarter with perhaps a short bump during the holiday peak season . UPS expects the freight forwarding market will begin to face slowing demand which is likely to continue into Q1 2023 as retailers continue to draw down high inventories and manufacturers face lower demand.

Consultant Insight: UPS’ agile network proves beneficial in slowing global economy

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