eCommerce Demand Pushes UPS Earnings

An investment in smart technology is starting to pay off for United Parcel Service (UPS) as profits soar.

UPS has a lot to be happy about these days, with a reported 10 percent growth in quarterly income, a major boost in efficiency and the decreasing cost of delivering online orders to U.S. homes. According to The Wall Street Journal, residential deliveries made by UPS are up more than 6 percent in the quarter.

These deliveries are historically more costly for delivery services compared to shipments made to businesses, with the packages tending to require more driving and time from the processors and carriers. However, UPS has been able to capitalize on the increasing need for these types of deliveries, thanks, in large part, to investments the company has recently made in updating its infrastructure.

According to WSJ, UPS has invested in software to help it plan more efficient delivery routes, added package pickup locations to allow it to pool more deliveries and picked up more of what it refers to as last-mile deliveries, which used to be primarily handled by the U.S. Postal Service.

For the quarter ending March 31, the company reported an increase in its U.S. domestic package operating profit of 7.6 percent to $1.1 billion, according to WSJ. This increase was thanks, in large part, to the reduction in the average cost per package by 1.9 percent. Additionally, it was increased due to efficiency gains, as well as lower fuel costs. Average daily U.S. package volume also increased by nearly 3 percent during the quarter, which helped boost the company’s profits.

“We’re creating that density that allows for the improvement in the economics,” Chief Financial Officer Richard Peretz said in an interview with WSJ. “You’re really starting to see that benefit in the last few quarters.”

The company told the outlet that it expects the momentum to continue. But it is also bracing for the impact of a pending decision by the U.S. Treasury Department regarding cuts to pension plans made back in 2007. Under a new law passed in 2014, reduction of benefits by a third-party pension plan would force the providing business to make up for the lost benefit payouts.

This may trigger a payout of up to $3.8 billion by UPS to former Teamster employees this year, something that would certainly put a dent in the delivery company’s earnings.