UPS Profits Are Down, 2009 Rates to Climb

While overall revenue for the delivery giant was up 7.4% for its third quarter, total operating profit was down 7.0%. In reflecting on the results, the company’s chairman and CEO, Scott Davis, said, "UPS managed the business well in this very tough economic climate. We continue to see growth in our international and supply chain businesses while maintaining our focus on cost control and revenue management throughout our organization.”

In terms of profit, Davis was referring to a decline in US Domestic Package down 9.0% and International Package down 9.8% year over year. However, the company’s Supply Chain and Freight segment profit was up 31.6%.

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All three segments had income increases year over year for the third quarter. US Domestic Package’s $7.84 billion was up 3.9; International Package at $2.95 billion was up 16.6%; and Supply Chain & Freight with $2.32 billion gained 9.0%.

In the face of a declining world economy, there were differing results for each segment. While average daily US domestic volumes were down 3.4% in the quarter, international per day export volume was up 7%. The company is moving to open a new Shanghai hub in the fourth quarter to link all of China to the UPS international network with direct service to the Americas, Europe and Asia. While forwarding and logistics operations in the Supply Chain & Freight segment continued growth evidenced in the first two quarters of the year, UPS Freight’s less-than-truckload felt the effects of the slowing US domestic economy.

Kurt Kuehn, UPS's chief financial officer, claimed, "We've taken steps to effectively manage our costs and enhance service levels in an environment that proved substantially worse than we initially anticipated, with significant slowing toward the end of the quarter." He noted that UPS reduced its 2008 capital expenditure budget by $200 million to $2.8 billion and expects to reduce 2009 capital expenditures as well.

"Based on economic forecasts, we anticipate a challenging environment for a number of quarters going forward," continued Kuehn. "We believe the U.S. consumer will be very conservative with spending this year.”

UPS has announced rate increases to go into effect on January 5, 2009. There will be an average increase of 5.9% for UPS Ground packages and an average net increase of 4.9% for all air express and International shipments that originate in the US. These rates are based on an increase in the base rate of 6.9%, less a 2% reduction in air and international fuel surcharges. UPS Freight will have a general increase of 5.9%.

All rate and service information as well as the UPS 2009 Rate and Service Guide are available at www.ups.com/rates.
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