January 31, 2017
UPS missed analysts’ revenue and earnings expectations for its latest fiscal quarter, and adjusted downward expectations for 2017. The company continues to experience a shift in composition of its delivery base from commercial to residential addresses that has hurt profit margins.
E-commerce sales are expanding at double-digit rates, according to the National Retail Federation. This drives steadily higher the total number of annual package shipments. But higher shipment volume does not necessarily translate into higher profit margins, since the total number of ship-to destinations increases in kind, driving up total delivery costs.
More deliveries to more addresses impacts shipping company productivity and ultimately, profit margins. By far, the “last mile delivery” cost component is the most expensive for all shippers. Plus, the increase in shipments to individual consumers is compounded by their rising demand for expedited and on-time delivery, further stressing shippers’ operations and margins.
For UPS, residential deliveries are less profitable than commercial deliveries, so company profit margins have been negatively impacted. Simply put, shipments from one business to another (Business to Business, or B2B) are typically larger, more efficient and so, more profitable. But, as a percentage of all UPS shipments, B2B sales are on the decline. For perspective, UPS classified 55% of its fourth quarter shipments as Business to Consumer (B2C) deliveries.
In contrast, FedEx, which has also experienced growth in total shipments, has managed to expand profit margins within its ground-shipping segment. Challenged to keep up, UPS plans to invest $4 billion in 2017 to increase overall capacity in its delivery network. Much of the invested capital will be spent on facility automation.
The information herein was compiled by Butcher Block Co., a leading E-commerce concern with a focus on kitchen furniture, equipment and accessories. The company sells branded and private label wood countertops, plus residential and commercial kitchen islands, tables, carts and cutting boards.
For more information, please visit Butcher Block Co.
Name: Kathleen Grodsky
Organization: Butcher Block Co.
Address: 10448 N 21st Pl Phoenix, Arizona 85028
Phone: (877) 845-5597