UPS reported a 10% growth in net income for the first quarter, as the company touted its ability to drive efficiencies in its ecommerce operations – with volume up 6% in the period, the highest in five quarters – through its own route optimization software, the use of collection points and more of a focus on handling its own last-mile deliveries.
However lower fuel prices have impacted UPS’s revenue from fuel surcharges, pushing total revenue per piece down 1.3% compared to the same period in 2015. The company’s operating profit for its domestic package business increased 7.6% to $1.1 billion.
“We’re really creating this (package collection) density synthetically through all of our ecommerce solutions, because all of them both drive customer and consumer convenience as well as density for UPS,” said Alan Gershenhorn, chief commercial officer and executive vice president for UPS. “And when you combine that with some of the things we’re doing on the efficiency side with ORION (software) and automation and things that, we really believe we’ve got a great platform for ecommerce for both retailers and consumers that will continue to enhance UPS profitability.”
Richard N. Peretz, CFO of UPS, said the company’s efficiency and productivity gains, including use of its ORION route optimization software, have allowed it to lower total driver miles by 1% even as the total number of stops increased 6%. Also, direct labor hours increased 1.8%, which Peretz said was “well below” the 2.8% growth in average daily volume.
“As these trends continue, UPS is improving the stop economics of ecommerce,” he said.
Gershenhorn said that while UPS is intrigued by the mall collection point model of Deliv for same-day delivery – which led to the recent investment in the company – he said UPS is more focused on next-day delivery as most consumer orders happen in late afternoon or early evening. He also said generally speaking same-day delivery is not a profitable venture due to “single-stop economics,” but Deliv’s model may be a way to get there quicker.
“We believe there’s much more demand for local next-day delivery, and we’re very focused on those local store solutions that enable us to take evening orders that are dropped to these stores,” he said. “Let the stores fulfill them locally that same evening, and with the UPS late-night pickup, we can get next day or morning delivery. So we can make the delivery in as little as 10 hours to 12 hours from the time the order is dropped into checkout.”
Gary Colangelo, vice president of client services at Spend Management Experts, said it will be interesting to see what UPS does with its Deliv investment.
“Deliv’s technology enables late-night orders to be delivered early the next day,” Colangelo said. “Combine that with a reverse logistics element and it could create a strong service offering for UPS. However it would need to be at a price point that is attractive to retailers who are already faced with many cost pressures.”
CEO David Abney once again addressed a question about Amazon’s logistics moves, including its investment in Air Transport Services Group Inc., from which it also leased 20 Boeing 767 cargo jets, saying the company’s client base was large and broad enough, and that Amazon remained a valued customer.
“We continue to invest in technology to deliver high-value solutions, and there are going to be customers that are going to utilize us as a single source,” Abney said. “There’s going to be other customers that are going to adjust and sometimes go single source, sometimes go multiple vendors, and sometimes they will bring some work in house, and that’s going to adjust as conditions adjust. But we feel we have a good relationship with that customer and feel that we will continue to add value for many, many years to come.”