April 25, 2014, 3:03 PM

Despite bad weather, UPS lifts Q1 package volume by 4.2%

The company says it is investing heavily in both immediate and long-term system improvements—including added capacity in distribution centers, the ability to quickly re-route high volumes of packages between distribution facilities during peak periods, and a new software system for routing delivery vehicles.

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Noticeably happy and relieved to be in the relatively mild weather of the second quarter, senior executives of United Parcel Service Inc. said this week they are taking several steps this year to upgrade the company’s infrastructure and operations—and investing $100 million in technology and services—to better handle peak shipping periods as well as to provide service throughout the year.

UPS is the most widely used shipping carrier among retailers in the newly published Internet Retailer 2014 Top 500 Guide, where it’s listed by 176 merchants, followed by FedEx Corp., with 144.

The first quarter’s stormy weather throughout much of the United States hit UPS hard, interrupting normal service on more than half of its operating days in the quarter—34 out of 63—as many governors declared high-level states of emergency “that prohibited us from working,” Myron Gray, president of U.S. operations, said during a conference call with stock analysts this week, according to a transcript of the call provided by Seeking Alpha. “I don’t think there is a person in the country who is more happy about seeing spring weather return.” Nonetheless, UPS still managed to increase its Q1 average daily volume of U.S. packages by 4.2% year over year, to 14.42 million packages. While bad weather resulted in a drop in orders from shipments between businesses, as many businesses closed during the worst weather, online retail orders continued strong as many consumers shopped from home, UPS said.

It didn’t break out figures on the number of retail orders, but noted that much of the growth in package volume was driven by increases in the number of ground shipments channeled through the UPS SurePost system, which many retailers use to route UPS shipments to the U.S. Postal Service for local deliveries. There was also growth in “deferred” air shipments spread over two or three days.

In other Q1 financial and operating data, UPS reported:

● Total average daily package volume, including international operations, increased by 4.8% to 1.07 billion packages from 1.02 billion.

● Total Q1 revenue increased 2.6% to $13.78 billion from $13.43 billion in the year-ago quarter.

● Because of service interruptions in the quarter, U.S. operating profit from package deliveries dropped 14.6%, to $927 million from $1.085 billion in 2013.

● Operating profit from international package deliveries rose 24.4% to $438 million from $352 million, as overall net income fell 12.2% to $911 million from $1.037 billion. 

CEO Scott Davis and other executives said on the conference call that UPS is taking several steps to improve operations and package-handling capacity, including the ability to distribute peak volumes among multiple distribution centers to expedite deliveries, while also working more closely with its clients to better prepare for expected shipping demand. “We’re working on improving mutual planning capabilities with obviously the ultimate goal of enhancing their end-consumers’ customer experience,” Davis said.

Kurt Kuehn, chief financial officer, noted that UPS is spending $100 million this year to upgrade technology, including its new ORION delivery network management system, or On-Road Integrated Optimization and Navigation system, and increase its ability to better handle fluctuating package volumes. Other recent improvements include the expansion of three main distribution centers in Kentucky, California and Alberta, Canada.

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