UPS released their latest financial results and conducted their quarterly earning call on February 1st. The headline of the press release summed it up, “UPS 4th Quarter Earnings Surge 44%, 2011 EPS Expected to Set All-time High.”

For the full year of 2010 they delivered 3.9 billion packages, averaging 15.6 million per day, with the daily peak over 25 million prior to Christmas. Revenue for the year was $49.5 billion, up 9.4%; adjusted Operating Profit was $5.8 billion, up 47%; with adjusted Earnings per Share of $3.56, up 54%. Volume appears to be growing arithmetically while profitability exploded. Click here for the press release that will give you more of the quarterly numbers. Let me share some additional thoughts from the Q&A session with the financial analyst community that should be of interest to shippers.

Compared to FedEx, UPS may be low keying their comments on yield management. Yet from these results, make no mistake - they are effectively implementing price increases while skillfully managing operational efficiencies to hit these profitability numbers. They mentioned how absolute base rates are going up across the board, the 2011 rate increase has been reasonably well received, and they are adding new wrinkles to pricing, specifically naming the change in Dimensional Weight.

The following is a brief list of some opportunities that UPS is looking for. Businesses with these characteristics may be able to offset some of the effective rate increases that are being implemented at this time.

They anticipate domestic package growth to be in line with GDP, approximately 3%. Furthermore, they feel industrial production will outgrow GDP. Shippers with higher domestic growth forecasts could use that positioning to help offset anticipated rate increases.
“Our top international priority is growth.” They think they have the best business model with margins well exceeding their competition. Customers who have international shipments would certainly be looked at favorably.
In Q4 the weight per shipment sequentially decreased. That’s to be expected as lighter-weight consumer products dominate holiday shipping. Besides base rate increases, if shippers see an increase in their average order size with a corresponding heavier weight per package, that is a very favorable characteristic that will work in a shipper’s favor.
One specific industry UPS is investing in is Healthcare. They are creating a host of comprehensive supply chain solutions tailored to this industry. Anyone in this market segment is going to capture UPS’ attention.

Outside of today’s earnings call shippers’ have now received their first invoices reflecting the impact of the 2011 annual rate increase. Let me share with you a couple observations that have been brought to my attention.

Address Corrections: We’re not talking about the 10% change from $10.00 to $11.00. The interesting example is the Maximum Address Correction Charge on Hundredweight Ground. It increased from $35.00 in 2010 to $77.00 in 2011. That’s a 120% increase! And we didn’t see any preview or advanced notification of this change.

Dim Weight: The pundits have analyzed this and shown how changing from the previous 194 domestic, 166 international to the new 166, 139 respective Dim Factors would have up to a 19% increase in billable weight. What has not been discussed is how many more packages will now be tagged with the new Dim Factor. In one analysis, I have seen the number of Dim Weight Adjustments more than double after the annual rate increase went into effect.

Continue to desperately seek that elusive 4.9% announced average net increase. I will let you know if I find it.

Available download:

UPS 4Q 2010 Earnings Surge

Executive Briefing:UPS Q4 Earnings Call Recap & Suggestions for Shippers

Executive Briefing:
UPS Q4 Earnings Call Recap & Suggestions for Shippers