United Parcel Service Inc - Company Strategy & Performance Analysis
United Parcel Service, Inc. (UPS) is one of the largest package delivery companies in the world. It provides various logistics services, including less-than-truckload services as well as supply chain management operations in more than 220 countries and territories. UPS conducts its business through three segments namely, the US Domestic Package, International Package, and Supply Chain and Freight.
The company’s International Package segment provides guaranteed day and time-definite international shipping services. The Supply Chain & Freight segment offers international air and ocean freight forwarding, customs brokerage, truckload freight brokerage, distribution and post-sales services, and mail and consulting services. The company is headquartered in Atlanta, Georgia, the US.
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Growing package volumes and adoption of newer technologies contributed to the growth in UPS’ US domestic package segment
The company’s US domestic package segment accounted for 63% of the total revenue in 2016 and offers services through next day air, deferred and ground divisions. The segmental revenue increased at 4.2% from US$36,747.0m in 2015 to US$38,301.0m in 2016. This was primarily attributed to the enhanced productivity, package volume growth and balanced growth across all divisions. The company aims to improve its operational efficiency by adopting advanced technologies. Project ORION (On-Road Integrated Optimization and Navigation), which was launched in 2015 has completed its first phase in 2016, and this will enhance customer value and decrease the distance driven by determining the most efficient delivery route.
Growth in volume drives the revenue of UPS’ international package operations
UPS’ international package segment revenues increased at 1.7% from US$12,149.0m in 2015 to US$12,350.0m in 2016. The segment accounted for 20.0% to the overall revenues and offers services through domestic, export and cargo divisions. The increase is attributed to growth volumes as well as fuel surcharge. In 2016, the company implemented an average 5.2% net increase in base and accessorial rates for international shipments. Operating profit and margin were positively affected by increase in base rate, modifications to the fuel surcharge indices and currency exchange rate movements.
Strategic acquisitions drive UPS’ supply chain and freight operations
UPS’ supply chain and freight offers services through forwarding & logistics and freight divisions. Total revenue for the Supply Chain & Freight segment increased at 8.3% from US$9,467.0m in 2015 to US$10,255.0m in 2016. This increase is primarily attributed to Coyote and Marken acquisition. Forwarding and Logistics division revenue increased at 15.1% from US$5,900.0m in 2015 to US$6,793.0m in 2016, mainly due to growth in mail services and retail, aerospace, healthcare and automotive solutions.