The company increased its average revenue per piece by 8.6% in 2022 — indicative of the increased cost to ship packages. At the same time, UPS saw a 3.4% decrease in volume for the year compared with 2021.
Volume in December during the peak holiday shipping season “fell short of our expectations,” reflecting cutbacks in consumer spending, said UPS chief financial officer Brian Newman during a conference call on the company’s results.
Earlier in the COVID-19 pandemic, stay-at-home protocols drove huge increases in e-commerce volume from people getting packages delivered to their doorsteps. But that has abated as pandemic restrictions eased, and consumers have cut back on spending in some areas as they are squeezed by inflation.
Delivery companies also encountered weather challenges during the recent peak holiday shipping season, leading to some delivery delays — but UPS CEO Carol Tomé said the company still delivered “industry-leading service.”
In the fourth quarter, UPS said it saw a decline in volume in China, along with declines in its freight forwarding business. It also reduced the number of packages it delivers for Amazon, its largest customer, per a contractual agreement.
Tomé has emphasized a “better not bigger” approach, focusing on the most profitable packages to deliver rather than just increasing volume. “Our results in 2022 demonstrate our strategy is working,” she said.
In 2022, UPS operating expenses increased to $87.24 billion, up 3.3%. That includes a 56.4% increase in fuel expense, to $6 billion.
The company’s $11.55 billion in net income was down 10.4% compared with 2021, as it saw a decline in non-cash pension gains. Looking at just operating profit, it saw a 2.2% increase in 2022 compared with 2021.
Looking forward, economic uncertainty and the possibility of a recession is weighing on companies.
“The outlook for economic growth is cloudy at best,” Tomé said.
UPS said it expects revenue for 2023 to decline to $97-$99.4 billion.
“We expect 2023 to be a bumpy year due to rising interest rates, decades-high inflation, recession forecasts, a war in Eastern Europe, COVID disruptions in China and our U.S. labor negotiations,” Newman said. He said the company’s base-case scenario is to expect a mild recession in the U.S. in the first half of the year, followed by a moderate recovery in the second half of the year.
The company will soon start labor negotiations with the International Brotherhood of Teamsters on a massive new contract. The Teamsters have threatened the possibility of a strike if they don’t reach agreement with management by a July 31 deadline.
Tomé said “we are not far apart on the issues,” while noting that the need for weekend deliveries has prompted worries from the Teamsters about pressures on the workforce from working six days a week.
“We just need to get to the bargaining table and work it out,” she said. “I’m committed to delivering with the rest of the team a win-win-win contract before the end of July.”