United Parcel Service (UPS)

UPS is the world’s largest package delivery company measured in terms of shipments, a provider of global supply chain management solutions and a leader in the domestic US LTL (less-than-truckload) market. In 2023, UPS delivered an average of 19 million packages per day, an annual total of 6.2 billion pieces. For most of its 100+ year history UPS was a ground delivery company. It maintains a dominant position in the US ground delivery market, but from the 1980s has evolved to also become one of the leading providers of air express services both in the US and internationally. UPS moves as many B2B as B2C packages, thanks to its increasing exposure to e-commerce. UPS employs approximately 500,000 people, of which 410,000 are in the US and 90,000 are located internationally.

UPS reports its results across three segments: US Domestic Package, International Package, and Supply Chain Solutions. The company reported a consolidated revenue of $91.0 billion, reflecting a 9.3% decline from the previous year, while consolidated operating profit dropped to $9.1 billion. The decrease in volume within their global small package operations was driven by reduced B2C shipping demand. This decline was made worse by the significant wage increases resulting from the new labor agreement with the Teamsters, which added to the operational costs but restored labor stability. Higher fuel prices and global supply chain disruptions also contributed to increased expenses.

Figure 1 shows the shares of revenue UPS gets from its three reportable business segments. The US domestic segment (air and ground), representing a 66% share, has seen a significant rise since the pandemic, primarily due to the surge in e-commerce as consumers shifted to online shopping during lockdowns. This growth was further supported by UPS enhancing its logistics network and expanding delivery capabilities, particularly in ground and next-day air services. In contrast, the combined share from International and Supply Chain & Freight has experienced a slight but steady decline. This decline is due to the stronger increase in domestic revenues driven by e-commerce growth, alongside challenges faced by the International and Supply Chain & Freight segments, such as global economic fluctuations and supply chain disruptions.

Figure 1 – UPS Revenues by Business Segment 2011 – 2023

Notably, for the year ended December 31, 2020, business from Amazon accounted for 13.3% of UPS’s revenue, but this fell to 11% by the end of 2023. This decline is due to UPS intentionally reducing its reliance on Amazon by shedding lower-margin shipments to focus on more profitable deliveries. Concurrently, Amazon has been expanding its logistics network, increasingly handling its deliveries in-house, allowing it to manage more of its parcel volume independently and further reducing its dependence on UPS.

Figure 2 provides a detailed view of the profit margin development across various business segments. The international business segment achieved an industry-leading operating profit margin of 18%, driven by strong demand for cross-border logistics and strategic expansions into emerging markets. Conversely, the Supply Chain & Freight division’s profit margin decreased to 6%, down from 11% in 2022 and 10% in 2021, due to increased operational costs, competitive pressures, and logistical challenges within the US market. The domestic market also saw a 2% decrease in profit margins, impacted by rising labor costs, regulatory changes, and market saturation, though it remains relatively stable compared to the Supply Chain & Freight division.

Figure 2 – UPS Profit Margin (EBIT) by Segment 2006 – 2023

UPS has also set ambitious sustainability goals, including achieving carbon neutrality across all operations by 2050, reducing CO2 emissions per package by 50% by 2035, and powering all facilities with renewable electricity. Financial targets for 2024 include projected revenues between $92 billion and $94.5 billion and an adjusted operating margin ranging from 10.0% to 10.6%, alongside significant investments in capital expenditures and dividend payments. The new USPS air cargo contract, which designates UPS as the primary air cargo provider, is expected to boost profitability by leveraging UPS’s efficient network and increasing volume in 2024.

Figure 3 shows the volume distribution development by product for UPS. At the moment, the largest portion of all shipments is attributed to the US Domestic Next Day Air, with a 28% share. This is followed by the US Domestic Deferred service with a 20% share. Figure 3 demonstrates how the International Export segment has increased post-pandemic with a 27% share in 2023. The increase in the share segment is driven by the growth in global e-commerce and international trade post-pandemic. Businesses and consumers have increasingly relied on cross-border shipping, leading to higher demand for international logistics services, which UPS has capitalized on by expanding its international capabilities. The decline in the US Domestic Deferred service to a 20% share is linked to shifts in customer preferences toward faster shipping options and cost considerations. Larger rate increases for domestic deferred services compared to other shipping options have made them less attractive to cost-sensitive customers. The remaining share goes to the International Domestic Service, a component that has lost share since 2015, with a share of 25% in 2023, a decrease from 29% in 2015.

Figure 3 – UPS Volume Share by Product 2011 – 2023

It is important to note that most International Domestic products are often surface and since UPS does not have a dedicated “Express division”, the services related to UPS “Air Express” are: US Next Day, US Deferred and International Export.

Figure 4 displays the package yield for the main UPS components in the Domestic and International markets. The average revenue per piece varies by type of service provided, with Next Day Air shipments generating about $22 each, significantly higher than Deferred (air) shipments at $16 or International Domestic at $8 (mostly surface). The highest yield comes from International Export shipments at about $33 each. All components saw an increase in package yield except for International Export. The decline in the International Export segment’s yield can be attributed to several factors, including decreased demand in key international markets, particularly in Asia and Europe, due to economic slowdowns in these regions. This resulted in an 8.3% decrease in average daily volume for international shipments, despite a slight increase in revenue per piece by 3.1%. Additionally, the macroeconomic environment, including higher labor costs from new union contracts and increased operational expenses, negatively impacted the profitability of international exports.

Figure 4 – UPS Yield by Product 2006 – 2023

Figure 5 provides an overview of the geographical distribution of UPS’s global network. While the company is obviously strong in the North and Central America, Europe and East Asia, its footprint in other regions is smaller.

Figure 5 – UPS Hubs and Focus Cities

UPS continues to invest in expanding its services and capabilities across the industry. It has invested $1.4 billion in building a new “super hub” in Pennsylvania, which will streamline and automate operations to improve package handling and delivery speed across the region. The company is also enhancing its infrastructure in the New York/New Jersey area with the construction of a new regional hub in Bayonne, New Jersey, boosting capacity and efficiency in the northeastern U.S.

Internationally, UPS is expanding its presence in Europe and Asia. In Europe, UPS is investing in advanced cold chain logistics to support the healthcare sector, with new facilities in key locations like Germany and Hungary. Even though UPS does not split its revenue by geographical region, we understand that Europe accounts for about 50% of its international revenue and it is currently one of their primary drivers for shipment growth. In Asia, UPS has launched UPS Premier in China, a service that combines advanced tracking and temperature-sensitive handling capabilities, reinforcing its commitment to the healthcare logistics market.