After a warning was sounded a couple of weeks ago, UPS
reported fourth quarter and full year earnings for 2013. For fourth quarter,
revenue increased 2.8% to almost $15 billion and for the year, revenue increased 2.4% to $55.4 billion.
For the quarter, International Package revenue improved
thanks to improvements in the European economy. Revenue for this division increased
5.3% to $3.4 billion and 8.8% growth on average daily volume. “Significant”
growth in the Asia-to-Europe trade lane was cited in its press release along
with an 8.2% increase in domestic volume in non-U.S. domestic volume - Poland,
Italy and Canada leading the way.
The Supply Chain and Freight Division continued to be weak
declining 5.8% to $2.3 billion, due to declines in the Freight Forwarding unit.
International air freight was singled out as the main culprit thanks to continued
declines in tonnage and revenue per kilo. However, Ocean Freight reported growth in
shipments and operating margin expansion. Meanwhile, in Distribution,
mid-single-digit revenue growth resulted from improvements in healthcare,
retail and UPS mail services. The shining star of this division continues to be UPS Freight,
which reported a 2.3% increase in revenue as a result of increased LTL tonnage
and pricing improvements.
Finally, the Domestic Package division, which took a PR spanking
during the holiday season thanks to adverse weather conditions and last minute
online shopping, witnessed revenue increase of 4.2% to $9.3 billion. Operating
profit totaled only $1.2 billion as additional costs associated with a
greater-than-expected surge in volume and weather led to a $178 million decline
from the prior-year adjusted results.
An interesting issue was noted during the holiday season in
which UPS found it difficult to obtain necessary air cargo space to help with
last minute shipments prior to Christmas Day. Was this a failing of its freight
forwarding capabilities or simply just bad timing?
In either case, quarterly average daily package volumes increased 6% while
December deliveries increased 20%. On December 23, the company delivered 31
million packages, the most ever. According to UPS, the highest delivery day occurred
six days later than anticipated and was 7.5% greater than planned.
The company took “extraordinary measures” to deploy
additional equipment and 85,000 temporary employees, 30,000 more than planned
but still came up short in delivering packages on time.
In its earnings call, UPS noted four key areas it needs to address
before 2014 peak season:
·
UPS volume forecasting methods were challenged
in that “the paradigms for planning no longer apply due to the rapidly evolving
marketplace”. As such, it plans to increase collaboration with “high impact”
customers to develop predictive models incorporating consumer behavior and
sales promotions.
·
Identify ways to enhance the throughput of its
networks.
·
Improve visibility of shipments.
·
Improve communications with shippers and
receivers.
It seems lessons were learned and the areas in which the
company plan to focus on should help improve matters. However who knows what
curve ball the 2014 holiday season will throw? The need for an agile supply
chain is important in the continuous changing B2C space and UPS is indeed
striving towards meeting this challenge.
