Consultant Insight: UPS starts 2021 with record Q4 profits, international volumes

UPS ended 2020 on a strong note, reporting record revenue for the year and record operating profit in all segments during the fourth quarter. Operating profit grew 26% year over year to $2.9 billion for the quarter, and record revenue of $84.6 billion was reported for the year, with growth across all segments. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Average daily volumes jumped during the quarter in what CEO Carol Tome described as a “very peaky peak” during the company’s earnings call this week, with international volumes the highest in the company’s history. Export volumes increased 27.8% for the quarter while domestic volumes increased 16.9%. UPS added an additional 365 flights to its normal schedules to support the export demand — led by Asia exports, up 45%, and Europe exports, up 30.7%. The international segment’s revenue per piece was up 3.8%, and cost per piece was up by 0.3% YoY; domestic’s revenue per piece increased by 9.1%. On the other hand, export revenue per piece struggled and was down by 1.1%. While nothing was said of the decline on the earnings call, it’s likely higher operating costs played a role in this decline. Revenue per piece was strong for UPS’ other segments as well, due to demand, pricing and surcharges. The U.S. domestic package segment’s revenue per piece increased 7.8% during the quarter with ground leading the way, up 11.2%, followed by deferred, up 4.8% and next day air, up 0.9%. One wonders if next day air’s smaller increase in revenue per package is due to pricing pressure from UPS’ largest customer, Amazon. The e-commerce giant now makes up more than 13% of UPS’ total revenue versus 11.6% in 2019. See also: Carol Tome is an Executive to Watch in 2021 The supply chain and freight segments scored another good quarter with revenue up 29% to $4.4 billion. Forwarding noted elevated demand out of Asia, while health care had one of its best quarters, driven by outbound direct-to-patient shipments. Overall, the segment’s operating profit was $331 million, a 26.3% YoY increase. UPS’ overall volume characteristics remain tilted toward business to consumer (B2C), which represented 67% of total volumes during the fourth quarter. B2C grew almost 20% YoY during the fourth quarter. Overall business-to-business (B2B) volumes continued to struggle and were down by 8.3% during the quarter, representing 37% of total overall volumes. Automotive and health care volumes were good, though up only in the single digits. In the international segment, B2C average daily volume grew 104.1%, while B2B was up 2% for the first quarterly B2B growth in 2020, thanks in part to high-tech exports from Asia and Europe. For 2021, expect UPS to remain “laser focused,” a favorite phrase of the CEO, on becoming “better, not bigger” through its network optimization and shedding unprofitable pieces of the business. We already saw this with the sale of UPS Freight to TFI last week: “UPS Freight is a capital-intensive, low-returning business,” said Tome of the sale. “We do not need to own this business to provide an LTL solution for our customers.” Indeed, UPS no longer needs asset-heavy UPS Freight . Going forward, look for UPS to lean more into its 2015 acquisition of non-asset based Coyote Logistics, a transportation broker, which has helped source extra equipment and transportation when needed. In addition, expect more sell-offs of unprofitable parts of the business. In keeping with its “better, not bigger” strategy, UPS expects its revenue to grow faster than its average daily volumes. This, according to UPS, will come from better revenue quality and productivity as well as its focused areas including small and medium-sized businesses, e-commerce and healthcare. Capital expenditures for 2021 are expected to be $4 billion with 40% allocated to maintenance capex and 50% allocated for both technology initiatives and network capabilities, with over half of this investment deployed to international and health care verticals. The remaining 10% is bound for growth projects that will come online after 2021. UPS also plans to retrofit seven facilities in 2021, adding about 2 million square feet with the ability to add an additional 130,000 packages per hour. Also, eleven new aircraft will also be added for the international segment.

Consultant Insight: UPS starts 2021 with record Q4 profits, international volumes

Clive: Unusual January ‘peak season’ kicks off strong 2021

Aero Capital Solutions tops up order for AEI-converted 737-800s

Related Posts

Raya Airways launches first dedicated freighter route to Maldives

Cathay Pacific profit rises as strong demand offsets war, fuel impact

German airport stops flights after drone sighting, collision

Aero Capital Solutions tops up order for AEI-converted 737-800s

Cargo Facts Free Newsletters

Cargo Facts Connect Podcast

Follow Us

Welcome Back!

Retrieve your password