Automation spending pays off for UPS
- UPS benefited from more than a year of technology investments during peak season 2018, increasing average daily volume in the fourth quarter by 3% year-over-year, according to executives on the company's fourth-quarter earnings call Thursday.
- At the end of 2018, nearly 70% of UPS' ground eligible volume went through automated facilities, up from 50% in 2017. In 2019 the company expects that to grow to almost 80%.
- To keep revenue growing along with volume CFO Richard Peretz pointed to the rate increase that went into effect on December 26.
UPS has made it clear that one of the ways it is chasing growth is by courting small and medium-sized businesses (SMBs), which generally come with higher per package rates. Automated facilities, along with a greater variety of services like fulfillment, are key to keeping this segment coming back while also turning a profit, executives explained.
UPS opened 22 automated facilities in 2018, and 20 more are on the way this year, including seven automated sort centers.
"We see the macro trend with SMBs participating in e-commerce needing help with that fulfillment in the marketplace. We do intend to meet the full spectrum of need for our small and medium-sized business," Chief Sales and Solutions Officer Kate Gutmann said on the call.
The carrier has partnered with several e-commerce digital providers, such a Shoprunner, Inxeption and returns platform Optoro, to grab more market share in this area. Gutmann said these types of partnerships, especially in the area of reverse logistics, add value to a service that can be considered a commodity, allowing UPS to charge more.
More "creative" partnerships will be coming later in the year, according to Gutmann. "Higher value equals higher price," she said, adding returns will be an important part of the UPS' mix of business going forward.
A diversified portfolio, in general, will help UPS with growth and insulate it from shocks related to the shifting winds of international trade, CEO David Abney said.
"We still think with all the trade discussions that there are global growth markets that we can certainly expand international ... E-commerce is providing all kind of opportunities," said COO Jim Barber adding that healthcare is also a major point of growth along with supply chain and freight.
One analyst asked if UPS can really grow volume and expand margins at the same time. The answer was a resounding yes with several executives referencing 2019 as a "pivot point" where investments in technology, capacity and automation will start to prove that volume and profit are not mutually exclusive.
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