The company shared in a Tuesday (July 28) earnings presentation that U.S. average daily package volume declined 3.3% from a year earlier as UPS completed its planned reduction of lower-yielding Amazon business. But domestic revenue increased 6%, operating profit jumped 21% and operating margin expanded by 100 basis points. Revenue per package rose 9.3%, supported by stronger pricing and a more favorable mix of customers.
At the company level, UPS generated $22.8 billion in revenue, up 7.6%, while operating profit increased 12% to $2.1 billion. Management raised its full-year outlook to approximately $91.2 billion in revenue, about $8.65 billion in operating profit and roughly $7.22 billion in diluted earnings per share.
The numbers matter for reasons that extend beyond a quarterly earnings beat. They provide an early indication that UPS may be able to grow profit without maximizing the number of packages moving through its network.
As UPS CEO Carol Tomé said on a Tuesday earnings call, the company is attempting to rebuild the economics of parcel delivery around a different formula of less low-return volume, more automation, and a technology layer that makes its physical network visible and adaptable in near real time.
See also: UPS Exits Volume Race, Bets on Healthcare, Cross-Border and B2B
UPS Moves From a Scanning Network to a Sensing Network
Better data is becoming the infrastructure UPS intends to use to attract better business. UPS completed the deployment of RFID sensing technology across its U.S. delivery facilities and package cars. It is combining the resulting stream of package data with an artificial intelligence-powered digital twin representing facilities, vehicles, aircraft, transportation modes and package flows.
Tomé described RFID as the “eyes and ears” of the network and AI as its “brain.” The sensors generate information from package movements, while AI converts those signals into predictions, decisions and operational actions.
UPS said the technology allows it to eliminate hundreds of millions of manual scans annually. The company deployed RFID sensing across its U.S. delivery facilities and package cars, enabled RFID labeling at its 5,500 UPS Store locations and began supplying label printers to customers.
Its digital twin adds an analytical layer above that infrastructure. By creating a virtual representation of package flows, buildings, vehicles and aircraft, UPS can model how a change in one part of the system may affect another. Weather disruptions, unexpected volume spikes and transportation constraints can therefore become inputs into a continuously updated operating model rather than isolated problems that dispatchers address after the fact.
A route cannot be optimized independently of facility capacity. Facility capacity cannot be separated from labor availability. Aircraft schedules, delivery commitments, weather conditions and package priorities all influence one another.
CEO Tomé said UPS has experienced no customer churn where RFID is deployed at the point of origin.
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Visibility Becomes the Logistics Product
After deliberately eliminating approximately 2 million low-quality Amazon packages per day and removing $4.5 billion in related expenses, UPS is aiming its leaner network at small- to medium-sized businesses (SMBs), healthcare logistics and higher-value B2B shipments. For high-value goods, pharmaceuticals or critical industrial components, certainty may be more commercially valuable than marginal improvements in delivery speed.
UPS executives offered investors an example involving a high-end jeweler that switched from a competing carrier after adopting the company’s RFID capabilities. Under the previous arrangement, security personnel watched packages as workers scanned and loaded them. With RFID labeling at the point of origin, the jeweler gained automated visibility from pickup through delivery and no longer required guards to monitor each scan.
That changes what UPS is selling. The company is not only providing transportation. It is selling control over a shipment’s journey and information about that journey.
SMB volume increased 4.3% year over year and represented 34.5% of U.S. volume in the second quarter, up 250 basis points year over year. The company’s Digital Access Program, which connects UPS with eCommerce platforms and shipping software, generated $1.4 billion in global quarterly revenue. B2B volume represented 43.8% of U.S. volume in the second quarter.
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By the end of the second quarter, 68.5% of U.S. package volume was moving through automated buildings, compared with 64% a year earlier, management said during the call. The cost per package in an automated building is approximately 28% lower than in a nonautomated facility.
Healthcare logistics offers the clearest picture of what UPS’ strategy could become. The company generated more than $3 billion in healthcare revenue for the second consecutive quarter and added 27 temperature-controlled cross-dock facilities to its global network. These facilities are designed to transfer sensitive healthcare products between air and ground transportation while preserving strict temperature requirements.
In this environment, the value proposition is not simply expedited delivery. It is the combination of transportation, asset control, temperature integrity, chain-of-custody data and predictive network management. That is effectively a vertically integrated operating system for a specialized supply chain.
UPS has spent decades building the roads, aircraft hubs, sorting facilities and delivery routes that move commerce. Its next challenge is to make that physical network behave more like software and persuade higher-value customers that visibility, not just velocity, is worth paying for.
