UPS Continues Efficiency Push as Revenue, Profit Grow in Q2

UPS is continuing to push for increased operational efficiency through automation of its major sortation and distribution facilities, as well as full implementation of its ORION route optimization system, the company told analysts on a second quarter conference call.

In 2016, the company has announced new hub automation projects in California, Colorado, Illinois and Texas. Overall, UPS plans to automate its 30 tier one hubs in the U.S.

“The process itself is going well and we continue to realize 20% to 25% productivity improvements as we go along,” said Myron Gray, UPS’s president of U.S. operations, adding the tier one hubs represent 60% of the company’s volume.

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Three of the automated hubs are in UPS’s air operation, with the rest supporting its ground business. All new hubs moving forward will be built using an automated design, and phase two of the program will automate the smaller tier two facilities. “We feel very good about the progress that’s being made and we’re on plan and a go-list to get it completed no later than 2020,” Gray said.

Concerning ORION, Gray said the system should be fully deployed by the end of 2016, resulting in savings of more than eight miles driven per driver.

“For example, this quarter we saw our delivery stops growing more than 3% on 2.5% average daily volume gains,” Gray said. “However we were able to reduce our miles driven by three tenths of a percent which helped keep our costs per piece down by two tenths of a percent. So as the volume continues to grow our wages are growing at a lesser pace than the volume.”

UPS reported revenue growth of 3.8% to $14.63 billion for the second quarter, with profit increasing 3.2% to $1.27 billion. The company said its ecommerce business is on pace to grow faster than expected through the end of the year, based on strength in U.S. consumer spending.

UPS’s less-than-truckload (LTL) business saw a reduction of 10% in total tonnage in the quarter, with Gray saying LTL has been soft for the past 16 months. “Our customer base is telling us that they have high inventory levels,” he said. “In addition to that with high inventory levels, the opportunity for restocking is soft as well.”

Despite this shortfall in LTL, as well as weakness in international freight forwarding, UPS’s overall supply chain and freight business had a 13% increase in revenue for the quarter due to gains in truckload brokerage revenue from the addition of acquired unit Coyote Logistics.

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