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UPS announced a record quarter on its July 26th earnings call, with consolidated operating profits surpassing $3 billion. Other impressive figures from the carrier included a revenue increase of 10.2% YoY, driven by a 13.4% YoY increase in revenue per piece.

While the unprecedented non-holiday surcharges that have been in place since the beginning of the pandemic have contributed to the recent growth, the changing mix and direction of consumer habits have helped. UPS also cites increased fuel surcharge revenues, base rate increases (GRI), and a changing product mix.

In the earnings call, the carrier specifically mentioned that the return of more in-store purchasing has brought about a change in preferences for service levels. SurePost average daily volume (ADV) is down 1.3M packages. Fuel and the evolving service mix contributed a 3% quarter-over-quarter (QoQ) change in revenue per piece.

But It’s not just market conditions — UPS deserves credit as well. The carrier has been working to execute on a specific plan to improve revenue quality, and those efforts are now providing results. Operating margins are continuing to expand for the carrier.


U.S. Domestic Operating Margin

Q2 2021: 11.6%

Q1 2021: 10.4%

Q2 2020: 9.3%


Unpacking the Profits: Analysis by TransImpact Director of Operations, Branden Burt

Right now, most carriers like UPS have a lot of leverage with shippers. Companies need to be smart with how they respond and position themselves for the future. Your approach may be dictated by your shipping volumes.

Breaking down who’s really paying the bill for UPS’s record profits is an important question. It may be a large vs. small shipper debate. First, one must wonder how much of this revenue and record-breaking activity is footed by large shippers paying surcharges, since they make up 73% of domestic package volume. But there are still details missing to explain the 2021 increases, and it’s unclear why the marketplace can’t gain access to a more detailed breakdown of where the revenue comes from.


Who Is Paying the Bill for UPS’s Profits: Large or Small Shippers?

UPS claims to seek to provide a frictionless experience for all its customers. If we focus on large shippers first, there might be some disagreement on that. In these times, when a large shipper is 15+ months into temporary surcharges, it’ll begin to seek alternatives to find any savings it can outside of its relieved pricing. And it may wonder if the surcharges will end anytime soon, even as UPS touts returns to pre-pandemic behaviors. In addition, UPS has been vocal about its efforts to improve revenue quality and pricing on these types of relationships. Apparently, UPS feels large shippers do not value its end-to-end services as much as SMBs, which is where the carrier is focused right now.

In the meantime, large shippers should be placing a lot of emphasis on understanding their own business needs and getting their data in shape, so when this market cycle comes back around, they’ll be in a position of strength and have more leverage when it comes to negotiating with the carriers. t’s worth mentioning that FedEx and UPS surcharges are nearly identical and the two corporate guidances align.


Who Does UPS Love?

The SMB. Right now, most SMBs are likely enjoying a friendlier experience with UPS as the carrier seeks to retain a strong backbone of revenue through its deployment of sticky, retention-focused tools. The digital access program, linking an SMB with its average consumer, thus ensuring high-quality service, continues end to end.

But the pendulum never stops swinging. Right now, sure, the SMB is a beneficiary of larger shippers footing revenues based on surcharges that are supposed to be going away. In the coming years, SMBs could be in a different position, and being locked in to one provider might not be ideal. The good news is, SMBs don’t have to deploy these tools themselves and remain locked into a relationship with one provider whose purpose is pickups and deliveries.

UPS knows SMBs don’t have the resources to build the tools they’ll need to be competitive, and that these customers make commitments. UPS locks shippers into deals that ensure the carrier healthy profits, but the shipper gets shipping tools seemingly for free. In the end, however, when push comes to shove, the shipper can’t decouple the tools without UPS losing capacity.


UPS has executed wildly well and already had a best-in-class plan to achieve “better, not bigger” results. The global supply meltdown has only magnified those results. With an unknown future as to the pressure on supply & demand for capacity globally, shippers fear not — you have options no matter your size.

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