United Parcel Service Inc., a major carrier for online retailers, reported today that average U.S. daily small-package volume fell 2.8% year over year for the fourth quarter ended Dec. 31, to 15.15 million from 15.58 million units, causing related revenue to decline 3.9% to $7.99 billion. Total Q4 revenue, including international package volume and overall freight and supply chain services, fell 5.2% to $12.7 billion.
"The severe decline in economic activity around the world resulted in sharply lower package and freight volumes for UPS," says chairman and CEO Scott Davis. "Consequently, we're making the tough decisions necessary to adapt our enterprise to today's realities. This includes changes in organizational structure, compensation and network configuration."
Among U.S. small-package deliveries (packages up to 150 lbs.), the average daily number of next-day air deliveries in Q4 declined by 8.6% year over year as ground deliveries declined by 2.1%. In contrast, the Q4 average daily volume of overall international small-package volume rose 3%.
For the full year, total U.S. small-package average daily volume declined 2% to 13.58 million, as related revenue fell 0.9% to $31.28 billion. Average daily international small-package volume for the year rose 3.7% to 1.96 million.
UPS reported overall Q4 net income of $254 million on revenue of $12.7 billion, compared to a year-ago loss of $2.64 billion on revenue of $13.39 billion. Minus special charges in each of the 2008 and 2007 fourth quarters related to restructuring and other matters, the company reported adjusted Q4 2008 net income of $829 million, down 27% from $1.13 billion a year earlier.
Net income for the full year was $3 billion on revenue of $51.49 billion, compared to 2007 net income of $382 million on revenue of $49.69 billion. Minus special charges, 2008 adjusted net income was $3.58 billion, down 18% from 2007 net income of $4.37 billion.
The company said financial results were also hampered by a lower average weight per package. Both b2c and b2b shipments included fewer items per package, resulting in a lower-than-expected increase in revenue per package that offset the benefit of declining fuel costs late in the year. For the quarter, revenue per package rose 0.6% to $8.79 in the U.S. but declined 8.2% to $19.26 in international deliveries. For the full year, revenue per package rose 3% year over year to $9.14 in the U.S. and 6.1% to $21.50 in international deliveries.
During the quarter, UPS continued to invest for the future, expanding its presence in China by opening a new hub in Shanghai, the company says. “This is the first hub constructed by a U.S. carrier in that country and links all of China to UPS's international network,” UPS says. The company also plans to build a new intra-Asian hub expected to open next year.
UPS expects a tough year in 2009, though it is planning for a slightly improved environment to begin to emerge in the second half. "The year will undoubtedly be one of the most difficult in UPS's history," Kuehn says. "Since economists do not expect any meaningful recovery until 2010, earnings in 2009 will suffer. Lower volume levels and reductions in package weight will put further pressure on margins. We anticipate the first quarter will be weak, with slight improvements later in the year as initiatives take hold."
UPS also notes that a sharp drop in the fuel surcharge for next-day air shipments, currently at 1%, down from 3.45% in October, should coincide with a rise in next-day deliveries, producing a boost in revenue.
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