Strong Last Few Years But Slower Growth Ahead — Trefis

United Parcel Service (NYSE:UPS) generates its revenue from a broad range of transportation services, which can be clubbed under four segments – US Domestic Package, International Package, Supply Chain & Other Businesses, and UPS Freight. In this note we discuss the company’s business model, revenue growth in the recent years, and our view on future growth. You can look at our interactive dashboard analysis ~ UPS Revenues: How Does UPS Make Money? ~ for more details. Additionally, you can access more of Trefis Industrials data here.

US Domestic Package Is The Largest Segment For UPS

• Domestic Package provides day definite, date-scheduled cost effective delivery for commercial and residential shipments in the U.S. and Puerto Rico.
• International Package operations encompass delivery of letters, documents, and packages to more than 220 countries and territories worldwide from or to the U.S.
• Supply Chain includes forwarding and logistics operations in more than 195 countries and territories worldwide. It includes supply chain design and management, freight distribution, customs brokerage, mail, and consulting services.
• UPS Freight is an LTL (less than truck load) service, which offers a full range of regional, inter-regional, and long-haul LTL capabilities in the U.S., Canada, Puerto Rico, Guam, the Virgin Islands, and Mexico.

UPS’ Business Model

• What Need Does It Serve?
  • UPS is primarily involved in delivery of packages worldwide. Its services are used by retail customers and businesses to deliver packages. It covers 220 countries.
  • While UPS’ primary business is the delivery of packages and documents worldwide, UPS service portfolio also includes global supply chain services and truckload transportation.
  • UPS operates a ground fleet of approximately 123,000 vehicles, which reaches all business and residential zip codes in the contiguous U.S. It also operates an air fleet of around 600 aircraft, and it is one of the largest airlines in the world.
• Who Pays To UPS?
  • Consumers and businesses across the globe. UPS Freight services though are available only for consumers and businesses in North America, Canada, Puerto Rico, Guam, the Virgin Islands, and Mexico.
• What Are The Alternatives To UPS?
  • Within package delivery service providers, other alternatives are FedEx, and DHL, among others.
  • Other alternatives are the public postal services, such as United States Postal Services, and Royal Mail UK, among others.

UPS’ Total Revenue Has Grown 23% Between 2014 And 2018, But The Growth Rate Could Slow In The Near Term.

• UPS’ total revenues grew from $58.2 billion in 2014 to $71.9 billion in 2018.
• This represents an average annual growth rate of 5.5%.
• We forecast the revenues to be around $81.9 billion by 2021, reflecting an average annual growth rate of 4.4%.

US Domestic Package Revenue Growth Over The Next Three Years Will Likely Be Driven By An Increase In Both Volume And Pricing.

• Next Day Air revenue has grown from $6.6 billion in 2014 to $7.6 billion in 2018.
• This growth was primarily driven by higher number of shipments, which increased from 322 million in 2014 to 390 million in 2018, partly offset by a decline in average revenue per shipment from $20.40 to $19.50 during the same period.
• This can be attributed to the e-commerce growth in the U.S.
• Looking forward, volume and pricing could see slight growth, resulting in revenues of $9.0 billion by 2021.

• Deferred Package Revenue has grown from $3.7 billion in 2014 to $4.8 billion in 2018.
• This growth was primarily driven by higher number of shipments, which increased from 292 million in 2014 to 362 million in 2018.
• The average revenue per shipment grew from $12.60 to $13.10 during the same period.
• Looking forward, volume and pricing could see slight growth, resulting in revenues of $5.5 billion by 2021.

• Ground Revenue has grown from $25.6 billion in 2014 to $31.2 billion in 2018.
• This growth was primarily driven by higher number of shipments, which increased from 3.3 billion in 2014 to 3.7 billion in 2018.
• The average revenue per shipment grew from $7.80 to $8.50 during the same period.
• This can be attributed to the e-commerce growth in the U.S.
• Looking forward, volume and pricing could see slight growth, resulting in revenues of $35.7 billion by 2021.

International Package Could See Slow Revenue Growth In The Near Term

• Domestic package revenue grew slightly from $2.8 billion in 2014 to $2.9 billion in 2018.
• The growth was led by volume, which grew from 399 million to 436 million during the same period.
• It was partly offset by decline in average revenue per piece, which declined from $7.00 in 2014 to $6.60 in 2018.
• Looking forward, shipments could continue to grow to 463 million by 2021, while average revenue per piece could decline in 2019, and rebound thereafter.

• Export package revenue grew from $9.6 billion in 2014 to $11.0 billion in 2018.
• The growth was led by volume, which grew from 282 million to 375 million during the same period.
• However, the growth was partly offset by decline in average revenue per piece, which declined from $34.00 in 2014 to $29.30 in 2018.
• Looking forward, shipments could continue to grow to 410 million by 2021, while average revenue per piece could decline in 2019, and rebound thereafter.
• The global trade tensions, and slowing economy in some of the countries, will likely impact the overall segment sales.

Supply Chain & Other Businesses And UPS Freight Could See Steady Revenue Growth In The Near Term, Led By The Company’s Low Cost Service And Capacity Expansion, And Mid-Single-Digit Rate Increases For Its Freight Business.

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