UPS Rocks Q2, With Average Daily Volume Up a Record 22.8%

A few weeks ago, analysts predicted that FedEx’s better-than-expected fourth-quarter results were a preview of coming attractions for when UPS reported. They weren’t wrong.

UPS reported a record 22.8% surge in average daily shipping volume in the second quarter, fueled by massive ecommerce growth, and a 65% increase in shipments to consumers, which represented almost 70% of total volume. SurePost, the last-mile service handled by the U.S. Postal Service, nearly doubled in volume, increasing 96.6% and representing 53% of the total domestic volume growth.

But as consumer delivery to individual stops is more expensive than to business customers, UPS saw a 4.4% decrease in revenue per piece in domestic delivery, even as revenue increased 17.3% to $13 billion, driven primarily by ground. Overall, UPS’s operating profit on a non-GAAP basis was down 0.9% to $1.21 billion.

As businesses were shut down for most of the quarter, UPS’s B2B volume declined 21.9% or 1.8 million pieces per day, CFO Brian Newman told analysts on an earnings call. “However, we did see B2B volume begin to recover in the quarter,” Newman said. “As a percentage of total volume, B2B shipments were 27% in early May. And at the end of the quarter, B2B shipments had climbed to 37% of total U.S. volume.”

Newman said UPS has more work ahead to fight profit erosion in a difficult environment, with overall profit per piece down 19.3%. “Moving forward, our focus is on improving network efficiency, optimizing the volume we bring in and better aligning pricing with the value we provide,” he said. First UPS and shortly after FedEx instituted peak-like surcharges in the midst of the pandemic, and continue to raise rates based on demand and capacity constraints.

New CEO Carol Tome said UPS has pulled investments planned for 2021 into 2020 in order to shorten critical time in transit and attract more SMB customers, an area that’s under-penetrated vs. its competition.

“When we’re done, we will be at parity or better in 20 of the 25 markets that matter in the U.S.,” Tome said, adding nearly half of UPS’s SMB customers or prospects say faster delivery is their number-one issue. “We will reach 90% of the U.S. population in three days, and 75% of the U.S. population will have Saturday delivery. And then of course, we have Sunday delivery through our SurePost product. This matters.”