E-commerce growth is proving expensive for United Parcel Service Inc. The delivery giant saw strong gains in domestic package volume in the first quarter, but the WSJ’s Paul Ziobro and Joshua Jamerson report that costs are also racing upward as the deliveries grow more expensive to complete and the company builds infrastructure to match changing consumer buying patterns. UPS says shipments to homes, a proxy for e-commerce deliveries, rose about 7% in the first quarter, ahead of the 2.6% volume increase in its U.S. parcel business. Those home deliveries are tougher to serve than the more concentrated and economical business-to-business deliveries. UPS is also building two regional hubs that will rely heavily on automation, taking some of the labor cost out of its distribution channels. It’s not all about cost: UPS saw operating profit at its supply chain and freight division jump nearly 22%, partly from the need driven by e-commerce for companies to store more goods closer to where shoppers live.
United Parcel Service Inc (UPS.N) reported a higher-than-expected quarterly net profit on Thursday as revenue grew across its domestic and international package delivery segments and as well as freight and supply chain operations.
Often seen as a bellwether of U.S. economic activity, UPS said revenue increased to $15.315 billion in the first quarter from $14.418 billion in the year-ago period, above expectations of $15.17 billion in revenue.
“We think of it as a good start, and we’re determined to have a good finish to the rest of the year,” Chief Executive Officer David Abney said in an interview with Reuters.
United Parcel Service Inc. continued to struggle to get the most from the jump in online retailing as investments to improve efficiency only start to bear fruit.
First-quarter operating profit slipped 2.4 percent in the U.S. package division even as revenue rose 5 percent from a year earlier, Atlanta-based UPS said in a statement Thursday. That signaled continued challenges in the company’s efforts to benefit from surging e-commerce, since home deliveries are less efficient than shipments to businesses.
- U.S. Domestic Revenue Increases 5.0% as Package Yield Expands on Continued Ecommerce Demand
- International Reported Operating Profit $529 Million, Currency-Neutral Operating Profit $648 Million
- Supply Chain & Freight Building Momentum as Operating Profit Jumps 22% on 13% Revenue Growth
- Operating Profit Growth Dampened by Fuel Surcharge Lag
- Reaffirms Full-Year 2017 Adjusted EPS Guidance
The indefinite-delivery/indefinite-quantity, fixed-price next generation delivery service contract provides express small package delivery services for international shipments and express and ground small package delivery services for domestic shipments, the Pentagon said in a statement.