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 2022, UPS delivered an average of 24.2 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 536,000 people, of which 443,000 are in the US and 93,000 are located internationally.
UPS reports its results in three segments: US Domestic Package, International Package, and Supply Chain & Freight operations. The company reported a record of just over $100 billion in consolidated revenue in 2022, up 3% from 2021 while consolidated operating profit increased by 2.2% to $13.1 billion. In 2022, UPS saw a decreased in volume from their “global small package operations” which encompasses the US domestic package and international package business segments. The decrease is due to lower levels of demand for B2C shipping.
Figure 1 shows the shares of revenue UPS gets from its three reportable business segments. Interestingly, the share of total revenue that UPS gets from its International Package operation (including both Domestic and Export components) and from its Supply Chain & Freight segment were on the rise before the recession but have been stable recently. Together, they represented 39% of all corporate revenues in 2008 while the US package segment (air and ground) represented 61% of revenue at that time. The combined share from International and Supply Chain & Freight has since then remained in the 36%-40% and the US Domestic package segment has a 64% share of the total revenue in 2022 with the distribution not likely to change in the short term. It is important to note that for the year ended in December 31, 2020, business from Amazon accounted for 13.3% but fell to 11.3% in 2022 as UPS started to focus on more profitable deliveries.
Figure 2 provides the profit margin development by business segment where the international business segment grew its operating profit and leads the industry with a 22% margin. The Supply Chain & Freight division has for the second year in a row increased their margin and is now at 11% compared to 10% in 2021 and 2% in 2020.
Figure 1 – UPS Revenues by Business Segment 2010 – 2022
Figure 2 – UPS Profit Margin (EBIT) by Segment 2006 – 2022
In 2023, the US Domestic segment of UPS witnessed a decline in performance, with revenues falling by 11% to $13.66 billion in the third quarter, mainly due to an 11.5% decrease in average daily volume, despite a slight increase in revenue per piece. Operating profits significantly dropped to $571 million. These challenges were exacerbated by higher labor costs and a temporary loss of business during labor negotiations with the Teamsters union.
In early 2021, UPS sold its LTL business, UPS Freight, due to its low-returning, capital-intensive nature. As of 2023, this divestment has resulted in a smaller UPS, with a decrease in consolidated revenues and operating profit. However, the company continues to focus on improving its assets and controlling volume through pricing and other actions. Despite facing global economic challenges and a decline in demand, UPS is adapting its strategy to prioritize customer experience, employee engagement, and innovation.
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 29% share. This is followed by the US Domestic Deferred service with a 26% share. Figure 3 demonstrates how the International Export segment has remained stable over time with a 23% share in 2022. The remaining share goes to the International Domestic service, a component that has lost share since 2014 with a share of 23% in 2022, a decrease from 31% in 2014.
Figure 3 – UPS Volume Share by Product 2010 – 2022
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 market. The average revenue per piece varies by type of service provided with Next Day Air shipments generating about $20 each, significantly higher than Deferred (air) shipments at $15 or International Domestic at $8 (mostly surface). The highest yield comes from International Export shipments at about $34 each. All components saw a boon in package yield due to the industry-wide rate increases brought on by strong demand and the cargo ship crisis.
Figure 4 – UPS Yield by Product 2006 – 2022
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 investing in the expansion of its services and capabilities across the industry. Recently, it planned to significantly expand its healthcare logistics services, announcing the opening of seven dedicated healthcare logistics facilities globally. This expansion includes approximately 1 million square feet of new dedicated healthcare space, part of which has already been inaugurated in Germany. These new facilities are an addition to UPS Healthcare’s existing 70 locations. Key features of this expansion include the development of advanced cooler and freezer spaces in the new GMP facility in Louisville and an expansion of GDP facility space in Hungary. On top of that, UPS Healthcare is establishing a new facility in Shanghai, further extending its global healthcare logistics network. Modern biomedical pharmaceuticals, such as vaccinations, which are frequently temperature-sensitive, make up more than 50% of all new medications in the world’s pharmaceutical pipeline. 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.