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Higher shipping rates have helped UPS offset a decline in the volume of packages shipped in the second quarter. Part of that rate increase comes from UPS shifting its focus away from handling deliveries for Amazon.com, and instead placing more emphasis on higher-margin deliveries to small and medium businesses. The Wall Street Journal’s Esther Fung reports:
The lower volumes haven’t damaged its business, however. The Atlanta-based carrier has been focused on shipping more profitable packages, rather than pursuing volume growth.
Part of the decline in the U.S. was due to the company shipping fewer packages from Amazon.com Inc., its largest single customer by revenue. The change in the approach, UPS said, frees it up to focus on gaining new and more profitable customers, including small- and medium-size shippers, and those in healthcare. Residential deliveries typically are less profitable routes since there are fewer packages per stop.
“We’ve contractually agreed on what makes sense for us versus what makes sense for them. That means that both volume and revenue from Amazon is coming down,” Ms. Tomé said.
UPS projects that revenue from Amazon will make up less than 11% of its total revenue by year’s end, she added. Amazon accounted for 11.7% of UPS’s total revenue in 2021, down from 13% the year before that.
For the remainder of 2022, UPS executives said they expect volume to improve slightly from the first half of the year and for revenue per piece to grow at a slower rate.
The company has said its efforts to pass along costs to customers haven’t damaged the business, as the U.S. job market and consumer spending remain steady. It also has said that it was reaping the benefits of automation and other technological improvements to boost efficiency.
As inflation pressures pile up, Ms. Tomé said UPS is working on a program that could lower shipping costs for some customers. It is running a pilot with a third-party company that would hold individual orders from being shipped for a set period of time until another order is received going to the same address. That would enable more packages to be delivered per stop, she said.
Higher fuel costs drove the bulk of growth in operating expenses in the latest quarter.
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