UPS’ eCommerce Package Price Increase Delivers Profit

In terms of profit, UPS was able to deliver positive results in its first quarter earnings report yesterday (April 28).

The company cited higher eCommerce package prices as one of the driving forces behind its quarterly profit of $1.02 billion, which was a 10.5 percent increase, year over year. UPS also posted a Q1 revenue of $6.36 billion, a 5.3 percent increase. An increase in online retail has been a particular high point for UPS, which has shifted its business model to appeal to the eCommerce boost in recent years.

“Another great example of a growth opportunity for UPS is the online retail. To strengthen our position as the eCommerce shipper of choice, we are expanding the access point network, our unique network of retail locations that both improves the consumers’ experience and provides better stop economics,” UPS CEO David Abney said during the company’s earnings call with analysts.

Outside of the B2C growth, Kurt Kuehn, UPS’ CFO also highlighted how the B2B industry has helped the company profit from the increased eCommerce shipping growth.

“Certainly, eCommerce though is also driving a significant amount of our B2B growth through returns as well as manufacturers that ship B2B going more into the eCommerce realm,” he said. “So, it’s really a mix there. So we are pretty excited about the fact that eCommerce is beginning to generate some significant B2B business.”

As highlighted in The Wall Street Journal, UPS’ package pricing strategy that contributed to its Q1 growth was part of its plan to adapt how it charged for its ground packages. Instead of relying on weight to price the packages, UPS now prices by size of box. This plan encouraged eCommerce sites and online merchants to use smaller boxes, and for those who didn’t, they paid the extra costs.

Kuehn also told the WSJ that it didn’t renew contracts with “a couple of substantial customers” that weren’t producing for UPS, but he didn’t elaborate on which companies those were. He indicated that B2C shipments are growing the fastest, but said UPS is seeing more B2B online package increase due to the growth of online commerce.

“[ECommerce profitability] “is a big priority for us, and it’s a combination of product design, improved convenience, reduced costs and some revenue management,” he said in an interview. “It’s not our goal to just increase costs to customers. It’s to have a win-win where they reduce their materials, expense, and we get to reduce our operating expense.”