Why is UPS volume down?

UPS attributed much of the decline in revenue and profit to lower package volume and impacts of labor negotiations. It reached an agreement with the Teamsters union in July to renew a five year contract and stave off a strike. The agreement was fully ratified in August.

Average daily volume declined 11.5% in the quarter, which was slightly offset by a 2% increase in revenue per piece. August was the most difficult month by volume levels, with some clients waiting until the union contract was ratified to start using UPS again.

In the last week of September, daily volume was down just 7.4% year over year, an improvement from the rest of the quarter, says Carol Tome, CEO, in a press release.

“While unfavorable macro-economic conditions negatively impacted global demand in the quarter, our U.S. labor contract was fully ratified … and volume that diverted during our labor negotiations is starting to return to our network,” Tome told investors in an earnings call. 

Ecommerce and Happy Returns acquisition

Ecommerce returns have been a “key area of growth” for UPS over the last several years, Tome said. It has grown 25% since 2020.

That was the impetus behind UPS acquiring reverse logistics company Happy Returns. Happy Returns will “generate profitable B2B volume, and help drive pickup and delivery density,” Tome said in the call.

UPS holiday shipping outlook

UPS is preparing for its busiest part of the year, the fourth quarter holiday season. It plans to hire 100,000 seasonal workers to process and deliver packages during the peak season.

Despite slowing demand, UPS expects to see “healthy” volumes during peak season. But there are headwinds, the retailer warns. Consumers are returning to stores and not doing as much of their shopping online, or spending more on experiences, which is also hurting UPS package volume, Tome said. 

UPS adjusted its 2023 outlook to expect consolidated revenue for the year to reach $91.3 billion to $92.3 billion. That’s down slightly from the anticipated $93 billion UPS gave in Q2.

UPS quarterly earnings

For the fiscal third quarter ended Sept. 30, 2023, UPS reported:

• Consolidated revenue declined 12.8% to $21.1 billion.

• Consolidated operating profit declined 48.7% to $1.3 billion.

• UPS average daily package volume declined 11.5%.

For the nine months ended Sept. 30, 2023, UPS reported:

• Total revenue declined 9.9% to $66.0 billion.

• Total operating profit decreased 29.4% to $7.1 billion.

Percentage changes may not align exactly with dollar figures due to rounding.

Check back for more earnings reports.

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The Top 1000 is Digital Commerce 360’s ranking of the largest North American online retailers. Amazon is also No. 3 in Digital Commerce 360’s Global Online Marketplaces Database, which ranks the 100 largest such marketplaces by 2023 third-party GMV. The latest analysis of the industry as a whole is published within the 2023 Global Online Marketplaces Report.

How much did Amazon make in Q3 sales?

Amazon sales in Q3 grew 13% over $127.1 billion in 2022. In North America, Amazon sales increased 11% year over year to $87.9 billion. And internationally, Amazon sales grew 16% year over year to $32.1 billion. Sales from AWS, or Amazon Web Services, increased 12% year over year to $23.1 billion.

“We saw our highest quarterly worldwide operating income ever,” said chief financial officer Brian Nowak on an Oct. 26 call with investors. It increased $8.7 billion year over year.

Amazon operating income grew at a much larger percentage than total sales compared with Q3 2022 — 343%. That’s nearly quadruple Amazon’s operating income in the year-ago period, growing to $11.2 billion in the third quarter from $2.5 billion. AWS operating income was $7 billion, up from $5.4 billion in Q3 2022.

Fulfillment and supply chain investments pay off

“Our cost to serve and speed of delivery in our stores business took another step forward, our AWS growth continued to stabilize, our advertising revenue grew robustly, and overall operating income and free cash flow rose significantly,” CEO Andy Jassy said in a statement. “The benefits of moving from a single national fulfillment network in the U.S. to eight distinct regions are exceeding our optimistic expectations, and perhaps most importantly, putting us on pace to deliver the fastest delivery speeds for Prime customers in our 29-year history. The AWS team continues to innovate and deliver at a rapid clip, particularly in generative AI.”

In addition to taking a regional approach to its fulfillment network, Amazon has begun offering Supply Chain by Amazon, which Jassy referred to as “a fully automated set of supply chain services.”

Supply Chain by Amazon can:

• Pick up inventory from manufacturing facilities around the world
• Ship it across borders
• Handle customs clearance and ground transportation
• Store inventory in bulk
• Manage replenishment across Amazon and other sales channels
• Deliver directly to customers

And Amazon sellers can do all of that without “having to worry about managing their supply chain,” Jassy said.

Brendan Witcher, vice president and principal analyst at research firm Forrester, said Amazon is one of the best in the business at delivering. Because of that, he said, it will have the challenge of setting customer expectations to always deliver on time. Witcher said it was notable that Amazon is using AI to help with inventory planning and optimizing driver routes.

“The real litmus test for Amazon’s regional supply chain will be the ability to deliver one-day and same-day delivery this holiday season with this level of growth,” Witcher said. “Fortunately, some of the volume should spread out a bit given that holiday really began with Amazon’s customers with the October Deal Days sale.”

Amazon powers up its generative AI technology

Jassy echoed points about generative AI from Amazon’s Q2 call with analysts in August. He broke down Amazon’s generative AI into three layers.

1. Lowest layer: Compute to train large language models (LLMs).
2. Middle layer: LLMs as a service.
3. Top layer: Applications that run the LLMs.

The middle layer, Jassy said, allows customers to customize those models “using their own data but without leaking that data back into the generalized LLM.”

“In these early days of generative AI, companies are still learning which models they want to use, which models they use for what purposes and which model sizes they should use to get the latency and cost characteristics they desire,” Jassy said in the Oct. 26 call with analysts. He said Amazon Bedrock “is the easiest way to build and scale enterprise-ready generative AI applications.”

“It’s pretty exciting what they’re doing for third-party sellers on the capabilities of generating web pages, generating product imagery for third-party sellers,” Forrester’s Witcher said. “They really do understand the small-business seller, to be quite blunt.”

How is Amazon doing financially 2023?

For the fiscal third quarter ended Sept. 30, Amazon.com Inc. reported:

• $143.1 billion in Amazon Q3 sales. That’s up 13% from $127.1 billion in the year-ago quarter.
• Amazon sales in North America in Q3 grew 11% year over year to $87.9 billion.
• International sales increased 16% year over year to $32.1 billion.
• AWS sales in Q3 grew 12% year over year to $23.1 billion.

For the nine months ended Sept. 30, Amazon reported:

• $404.8 billion in Amazon sales. That’s up from $364.8 billion in the year-ago period.
• Year-to-date Amazon operating income reached $381.2 billion. That’s up from $355.7 billion in the comparable period last year.
• International sales grew to about $91 billion, up from $83.5 billion.
• AWS sales grew to nearly $66.6 billion from $58.7 billion in the comparable period in 2022.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports. Here’s last quarter’s Amazon earnings article.

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Dan Lewis, CEO, Convoy Inc.

“We are in the middle of a massive freight recession and a contraction in the capital markets,” Lewis said in a memo to employees, whose ranks had been slashed to about 500 from a peak of 1,500 a year ago.

Launched in 2015 under the leadership of Lewis, a former Amazon.com Inc. executive — and operating with financial backing from such investor as Amazon founder Jeff Bezos and Microsoft co-founder Bill Gates — Convoy racked up a client base including such companies as The Home Depot, Unilever, Procter & Gamble and Anheuser-Busch.

But largely because of post-pandemic drop in demand and a challenging investment market, Lewis said Convoy had spent the last several months exploring alternatives, including possible acquirers to maintain its operations.

“Alongside this unprecedent freight market collapse, the dramatic monetary tightening we’ve seen over the past 18 months has dramatically dampened investment appetite,” he said, adding: “M&A activity has shrunk substantially, and most logical strategic acquirers of Convoy are also suffering from the freight market collapse, making the deal that much harder. The perfect storm.”

Mike Brown, general partner of investment firm Bowery Capital, commented in an email to DC360 that Bowery’s  tracking of fundraising data for B2B marketplaces, in general, shows the quantity and monetary value of financings is down significantly.

He suggested that “a macro takeaway” regarding investments in B2B marketplaces “is the cyclicity of the business and difficulty of the business model (including low take rates, high servicing costs, and tough multiples) which we think will scare a lot of venture dollars away.”

Bloomberg News reported yesterday that Convoy is one of many logistics startups hurt by falling prices and demand for shipping along with a downturn in venture capital fundraising. Bloomberg noted that Flexport Inc. and Seattle-based warehousing startup Flexe Inc. have had to lay off workers as demand fell from pandemic highs.

Paul Demery is a Digital Commerce 360 contributing editor covering B2B digital commerce technology and strategy. paul@digitalcommerce360.com.

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RoadEx then delivers them to retailers looking to quickly get trendy furniture and merchandise into showrooms and store shelves or to consumers’ doorsteps. RoadEx is a trucking and logistics services company.

Lisa Wan, executive vice president, RoadEx America

“A lot of ecommerce customers are looking for containers delivered more quickly to their warehouses for a faster turnaround. They need to empty them and have cargoes they ship to their stores or direct to consumers,” says Lisa Wan, executive vice president of operations, RoadEx America.

RoadEx has been expediting its container pick-up and delivery service with new web-based software. The software lets it know when its clients’ incoming containers will be available for pick-up at a port terminal. It also uses complementary drayage-management software to route its container-carrying trucks. The software does so in a way that puts them at that terminal at the scheduled pick-up time, Wan says.

The web-based drayOS drayage management system, from PortPro, also lets RoadEx optimize the routing of its container trucks. In addition, drayOS offers an online portal for customers to check the expected delivery time of their containers and access shipping invoices.

Providing the Uber experience in shipping

“Nowadays, our customers are expecting more visibility to the point of comparing it to Uber,” where they can see who their driver is, what vehicle they’re in, and when they’ll arrive, Wan says.

That expectation is likely to only increase as ecommerce accounts for more container shipping, she and others say.

Ecommerce orders of products ranging from electronics and food to cars and chemicals is driving up business at U.S. ports. It’s sparking demand for “port-to-door” transportation-management systems, according to a new report, 2023 State of Drayage.

The U.S. drayage market — transporting goods from container ships to distribution centers, retailers and end customers — is on course to grow. It’ll go from $6.1 billion last year to $8.3 billion by 2027, according to figures the report cites from market research firm Technavio. Globally, the drayage services market will grow from about $25.2 billion last year to more than $28.2 billion in 2027.

Michael Mecca, CEO, PortPro

Michael Mecca, CEO and founder of PortPro, says that as companies source products through global supply chains and ship them to customers, they face the challenge of getting shipment visibility and status and sharing it with their trading partners.

“This lack of visibility leads to costly headaches like containers and equipment being double-handled, and drivers stuck waiting in line at marine terminals,” the report says. “It also causes a whole host of operational inefficiencies that ripple across the enterprise for drayage carriers.”

A spokeswoman says that PortPro produced the report based on information derived from logistics services companies and research firms. PortPro provides transportation-management software for drayage trucking companies.

RoadEx uses PortPro technology to fill a void

Mecca says web-based digital drayage management systems, such as PortPro’s drayOS, help fill a void of shipment visibility between ports and final destinations.

Mecca notes that PortPro is on course to double its revenue this year after tripling last year. He founded it in 2019. PortPro raised $12 million in funding late last year from Avenue Growth Partners. And it’s using the funds to continue developing its software for managing drayage operations.

At RoadEx, Wan says she expects to rely on drayage-management systems even more in the years ahead. She notes that the systems will be crucial to deal with market disruptions. For example, the COVID-19 pandemic caused severe back-ups at port facilities. And with systems that help container carriers expedite deliveries and provide arrival times, retailers and other shippers may forego air freight for less costly if far slower ocean container routes, she adds.

PortPro primarily works with trucking companies in the United States and Canada. But recently, it expanded into Europe, offering its software to drayage firms serving Rotterdam, Netherlands.

“Rotterdam to New Jersey is a really common shipping lane now,” Mecca says. He adds, “We’re working on moving into more continents, more countries.”

Paul Demery is a Digital Commerce 360 contributing editor covering B2B digital commerce technology and strategy. paul@digitalcommerce360.com.

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FedEx revenue declined to $21.7 billion, down from $23.2 billion in the year-ago period. However, operating income grew over the same time period, up to $1.49 billion from $1.19 billion last year. Margins also improved, reaching 6.8%, up from 5.1% last year. Net income reached $1.08 billion, from $875 million in the previous period. 

478 retailers in the Top 1000 use FedEx for at least some of their fulfillment. The Top 1000 is Digital Commerce 360’s ranking of North America’s leading online retailers by web sales.

2023 Ecommerce Fulfillment Report

Analysis of the latest trends in ecommerce fulfillment. Includes over 20 charts, expert analysis on top U.S. shipping carriers and how their finances impact retailers, and breakdowns of shipping, returns, and omnichannel offerings among retailers in the Top 1000

View Details

FedEx revenue by category

FedEx Express operating income grew 18% during the first fiscal quarter, while revenue declined 9%. 

Operating income grew 59% for FedEx Ground because of yield improvements and cost reductions, FedEx said. Cost per package declined 2% due to better productivity in first- and last-mile deliveries, it said.

FedEx Freight had different results, with operating income declining 26% due to lower fuel surcharges. Freight also closed 29 terminal locations in the quarter, FedEx said.

“FedEx Ground had an outstanding quarter which, when combined with improved earnings at FedEx Express and expense controls across the organization, led to our better-than-expected overall financial performance,” Raj Subramaniam, FedEx president and CEO, said in a statement.

In June 2024, FedEx Express, FedEx Ground and FedEx Services will be consolidated into one company, it noted.

FedEx focused on cutting costs

The delivery company attributed growing profitability to cost-cutting measures across its offerings. 

“Cost reductions and transformation efforts that benefited the quarter included structural flight reductions, the alignment of staffing with volume levels, parking aircraft, and shifting to one delivery wave per day in the U.S.,” FedEx said in a press release. 

The savings are part of a plan to cut costs by $1.8 billion in the fiscal year. FedEx says the savings will be spread evenly across the year, pointing to $130 million in savings in FedEx Ground in Q1.

Demand declined

FedEx executives said demand was down across the board. FedEx Ground and international export volumes increased year over year, the shipping company said, but still reflect a “muted demand environment.”

The volume of domestic parcels will be down about 25% in fiscal 2024, Brie Carere, chief customer officer, estimated.

To combat declining demand, FedEx announced a price increase of 5.9% going into effect in January. The company will also implement demand surcharges over the holiday season, when volume typically increases.

FedEx earnings

For the fiscal first quarter ended Aug. 31, FedEx reported:

• Revenue declined 6% to $21.7 billion.
• Net income increased by $205 million to $1.08 billion.
• Net margin increased to 6.8%, up from 5.1%.

Percentage changes may not align exactly with dollar figures due to rounding. Check back for more earnings reports.

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Dave Clark

Flexport is planning to focus more on its core freight business under the leadership of executive chairman Ryan Petersen, who founded the company in 2013 and is taking over as the chief executive, replacing Dave Clark, the long-time Amazon executive he recruited a year ago to fill the CEO spot.

Flexport confirmed the executive changes. Its website today did not list Clark among the leadership.

Flexport CEO changes

Flexport provides a range of freight-management services and lists as clients such companies as Georgia-Pacific, Bombas and Gerber. Earlier this year, it agreed to acquire Shopify Logistics from the Shopify ecommerce technology company to handle last-mile delivery services for Shopify merchants.

Clark joined Flexport a year ago, serving alongside Petersen as co-CEO before taking over as the sole top executive in March.

“We built a great tech at rapid speeds, especially the flagship SMB product for small business that we are launching for entrepreneurs tomorrow,” Clark said yesterday on X, the social media site formerly known as Twitter.

Clark indicated that he was leaving on good terms.

Ryan Petersen, founder and executive chairman, Flexport

“Founders have the right to change their mind,” he said on X  yesterday. “I came to Flexport to do big things, and that’s where I believe we were headed. Today, Ryan and I discussed his desire to return to focusing on growth in the core freight business. In light of that, I feel that he is best suited to lead the company in that direction. As such, I will be resigning from my position at Flexport.”

Clark is now considering a run to become governor of Texas and has hired political consultants, according to a report yesterday in the Wall Street Journal.

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Paul Demery is a Digital Commerce 360 contributing editor covering B2B digital commerce technology and strategy. paul@digitalcommerce360.com.

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The Wing drones will be able to drop off food and household essentials as far as six miles from the stores, Prathibha Rajashekhar, senior vice president of innovation and automation at Walmart’s U.S. unit, said in an Aug. 24 statement. Wing has approvals from the Federal Aviation Administration to fly its drones beyond their human operators’ visual line of sight.

“Wing’s technology allows operators to oversee the system from a remote location, which means pilots won’t need to be stationed at stores or customer homes,” Shannon Nash, chief financial officer of the Alphabet unit, said in a separate statement. “The aircraft essentially fly themselves, so each operator is approved to safely oversee many drones at the same time.”

The Walmart-Wing partnership, while limited for now to only two stores, marks an important expansion in drone service because of the expected range of the deliveries. While widespread deliveries around the U.S. are likely years away as the FAA finalizes its rules and companies perfect their technology, the Dallas project shows how serious retailers are about using robotic aircraft to serve online shoppers.

Deliveries will begin in the coming weeks from a Walmart Supercenter in Frisco, Texas, an upscale suburb north of Dallas with a population of about 220,000. A second store will be added in the area by the end of the year.

Walmart ranks No. 2 in the Top 1000, Digital Commerce 360’s ranking of North America’s online retailers by web sales. It is also No. 9 in the Global Online Marketplaces Database, Digital Commerce 360’s ranking of top online marketplaces.

Egg cartons

From the two locations, Walmart expects to be able to offer drone coverage to about 60,000 homes. Service will be available between 10:30 a.m. and 6:30 p.m. every day but Wednesday, and deliveries are slated to take less than 30 minutes. Prospective customers can download the Wing app to see if they’re eligible. Deliveries placed on the app will initially be free, although that could change as the service progresses.

Wing’s drones cruise at 65 miles an hour (105 kilometers per hour) and use a tether to drop off merchandise. The aircraft can handle even delicate items such as cartons of eggs and leave them in precise locations outside customers’ homes, the Alphabet unit said.

Walmart and Wing already have drone projects in the Dallas area. Wing began deliveries last year from a Walgreens Boots Alliance Inc. store, serving customers in Frisco and nearby Little Elm, Texas. Walmart has aerial-delivery hubs in a partnership with DroneUp LLC, which it partially owns. Walmart and DroneUp also have operations in Arizona, Arkansas, Florida, Utah and Virginia.

The Bentonville, Arkansas-based retailer also has US drone projects with Zipline International Inc. and Flytrex Inc. All told, Walmart offers drone service at 36 stores in seven states, and has completed more than 10,000 deliveries.

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Palouse was operating with a hybrid shipping model, using Fulfillment by Amazon and fulfilling some orders itself. That system couldn’t scale up fast enough to meet demand, Mader says. 

“We needed a solution that would allow us to ship semi loads to a distribution center and then have it go straight from that distribution center. … We could not keep up with order demand and stock them fast enough,” she says.

Then, Palouse’s long-standing relationship with USPS fell apart when the carrier changed package sizes, and Mader knew she needed another solution. 

What is a 4PL?

3PLs, or third-party logistics companies, are logistics providers used by retailers to outsource aspects of fulfillment for their businesses. Fourth-party logistics companies (4PLs) take it one step further, and manage relationships between retailers and 3PLs. 

“Historically, when you think about Fortune 500 companies, major brands, unless you’re one of those folks, you probably have to piecemeal [carriers] together,” Ware2Go CEO Steve Denton says. “What we do is we simplify that [relationship] both on the fulfillment and the logistics side, by connecting with warehouses. We’ve got 36 of them in our network right now. We connect them through one common technology platform,” he says.

Ware2Go is a UPS 4PL company that began working with Palouse Brand in 2022. The “sweet spot” for retailers that work with Ware2Go is between $5 million and $250 million in gross merchandise sales, Denton says. 

The logistics vendor allows clients to upload a year of shipping history and where their warehouses are located, then runs an analysis with recommendations for them, Denton says. The analysis shows information including the average cost and transit time. Ware2Go recommends where the retailer should place another warehouse, for example, to reduce transit time and costs based on average orders. 

Ware2Go has leverage as part of UPS to find lower rates for clients, Denton says.

“So as a UPS company, we got pretty good rates; we’re aggregating hundreds and hundreds of merchants. Typically, we are the largest client with any of these warehouse partners we’ve been working with,” he says. 

That translates to an average savings of 20% to 30% on fulfillment costs, per Denton. Part of the savings comes from what he calls an “Uber model,” where retailers only pay for warehouses and workers when they’re actively using them, rather than owning the warehouse themselves.

Palouse shaved 20% off its fulfillment costs

Palouse was up and running with the 4PL just two weeks after starting the process, Mader says. 

The retailer discontinued its use of Fulfillment by Amazon, and switched to the Seller Fulfilled Prime model, operated by Ware2Go. 

“For us, protecting our Prime badge is key,” Mader says of the distinction placed on some Amazon products denoting that they come with free one- or two-day shipping to Prime Members. Palouse kept its Prime badge with Ware2Go, and offered free two-day delivery to orders made from PalouseBrand.com, too.

Ware2Go also set Palouse up with five warehouses across its sales area. The vendor has a 48-hour service-level agreement (SLA) with Palouse, Mader says, meaning that products are available for sale online within 48 hours of arrival at the warehouse. That’s a major change up to 90 days faster than at other warehouses Palouse used in the past, she says.

“There’s a huge lag from when it leaves your building to when the shipments close,” Mader says. Every additional day of transit and processing time costs Palouse more money. Ware2Go has changed Palouse’s whole business, Mader says, because “we aren’t having such huge inventory carrying costs because we can turn it so much faster.”

15 months after implementation, Ware2Go cut Palouse’s fulfillment costs by 20%, Mader says. Time in transit is down 40%, and 98% of customers are within a two-day shipping radius. 

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Package volume declined

Revenue was down in part because package volume declined in the quarter, UPS says. Total average daily package volume dropped 9.9% in the quarter compared with 2022. In June, volumes were even lower, down 12.2% over 2022.

Though there were declines across all sectors using UPS, retail and tech marked the largest drops, UPS says. B2C average daily volume declined 11.5%. B2B volumes fared a bit better, down 7.7%. 

Air transportation amounted to most of the decline, per UPS. Average daily volume was down 16.5%, compared with 8.6% for ground shipping. 

UPS is used by more retailers in Digital Commerce 360’s Top 1000 online retailers than any other carrier.

Impacts of the new labor contract

UPS reached an agreement with the Teamsters union in July, covering 340,000 member employees. Part of the reduced package volume in the quarter was due to “noise levels around our labor negotiations,” chief financial officer Brian Newman told investors in an earnings call. UPS estimates that customers switching to other carriers ahead of the looming strike cut down about 1.2 million packages per day.

UPS also adjusted its outlook for the rest of 2023 following the deal, which raised the average compensation of a full-time driver to $170,000 by the end of the five-year contract. The package carrier reduced its 2023 revenue outlook from $97 billion to $93 billion “primarily to reflect the volume impact from labor negotiations and the costs associated with the tentative agreement reached with the International Brotherhood of Teamsters.”

Ecommerce commentary

Demand for package delivery from ecommerce retailers is “stable to improving in the U.S.,” Newman said in the call, and “obviously, under some more pressure internationally.”

Ecommerce “blew up” during the pandemic, CEO Carol Tome said.

“And so now everything is kind of reverting back to where it was before COVID. We see that around the globe, which makes sense,” she told investors.

UPS Earnings

For the fiscal second quarter ended June 30, 2023, UPS reported:

• Consolidated revenue declined 10.9% to $22.1 billion.
• Consolidated operating profit was down 21.4% to $2.8 billion.
• UPS average daily package volume declined 9.9%.

For the six months ended June 30, 2023, UPS reported:

• Total revenue declined 8.5% to $44.98 billion.
• Total operating profit was down 20.5% to $5.47 billion.

Percentage changes may not align exactly with dollar figures due to rounding.

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