UPS reports $2.58 billion quarterly profit despite high fuel costs

High shipping rates are expected to go even higher just after Christmas

Sandy Springs-based UPS made a $2.58 billion profit for the third quarter, as high shipping rates boosted its revenue in the face of high fuel costs and other economic headwinds.

The cost of shipping is set to go even higher, which can push up the price of goods for consumers.

UPS is preparing for the busy holiday shipping season, when volume surges as shoppers rush to buy gifts online and in stores. The company announced new peak demand surcharges last month that apply to large-volume customers, international shipments and packages that are large or require extra handling.

And last week UPS announced rate increases that take effect just after Christmas on Dec. 27. Its rates will go up by an average of 6.9% — matching FedEx rate increases. Industry publication FreightWaves called the size of the latest rate increases “unprecedented in the long histories of both companies.”

UPS told customers on its website that the price hikes help to “support ongoing expansion and capability enhancements as we strive to maintain the high service levels you expect from UPS.”

The company managed to increase its third quarter profit even though it is handling fewer packages this year than it did last year, with a 2.1% decline in shipped packages for the quarter.

“In the third quarter, the global economy softened, especially outside the United States,” said Carol Tomé, CEO of UPS, during an investor conference call Tuesday. Inflation, volatile energy prices, pandemic lockdowns in Asia and the Ukraine war drove weak economic conditions overseas.

Looking forward, “there is so much uncertainty,” she said. “There’s economic uncertainty, there’s geopolitical uncertainty,” as well as labor uncertainty with the company’s massive Teamsters contract up for negotiation next year.

Tomé said UPS will be more conservative in its planning to be able to “turn on a dime” if necessary. The company is leasing two new facilities instead of buying them, and cut flights from China and Hong Kong earlier this year, shifting some aircraft to Europe for exports.

For the July-to-September quarter, the shipping giant’s profit was up 10.9% from a year earlier, when it posted $2.33 billion in net income.

That’s because higher shipping rates brought in 8.6% more revenue per piece for UPS than a year earlier. The biggest average increases in revenue per piece were in the domestic segment.

That helped UPS to increase revenue by 4.2% to $24.16 billion for the quarter.

The company’s operating expenses climbed 3.7% in the quarter to $21.05 billion, including a 61.1% increase in fuel expense year-over-year.

During the peak holiday season, UPS will see reduced volume from some of its largest customer contracts, including Amazon. Tomé said that will make more room for business from other customers, with a focus on higher-margin business.

UPS still expects to bring in $102 billion in revenue for the full year.

But rising costs are driving the company to search for more ways to improve efficiency. UPS has been cutting administrative staff and using bots to do more work to reduce $1 billion in costs. It has added RFID tags to packages in 101 of its facilities to reduce the number of packages loaded into the wrong trucks for delivery, and is using more automation in facilities to reduce staff needed for some manual tasks.

“You’d want over time to be able to run the inside operations with less headcount and more automation and technology,” said UPS chief financial officer Brian Newman.

UPS is also testing a system to bundle deliveries of orders from multiple merchants to reduce the number of stops needed at each doorstep.

The company’s strategy for the future includes a plan to combine services from partners and firms it has acquired such as same-day gig-driver delivery service Roadie and ship-from-store technology firm Delivery Solutions — to sell “logistics as a service” for businesses to ship and store products more efficiently.

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