UPS executives must have been all smiles as they announced hefty first-quarter revenue growth to investors via conference call last Thursday. The world’s largest shipping company generated 6.2% revenue growth and delivered a 3.9 percent increase in Q1 EPS when compared with the same period the year prior.
While this news is good for shareholders – to whom UPS paid $774 million in dividends in the first quarter, up 6.4 percent per share over the prior year – it’s the 2017 UPS rate increase that appears to be paying dividends for the company.
Revenue per piece in the U.S. domestic segment increased across all products, up 2.4 percent in total, according to a release posted to the UPS website, as “the company benefitted from previously implemented base rate pricing actions.”
What that means in layman’s terms is that UPS is raking in an average of 2.4 percent more revenue – $9.57 in 2017 vs. $9.35 in 2016 for U.S. domestic packages – with every package that moves through its network.
And base rate pricing actions? Give we increased our prices a couple shots of cologne and begin to smell the… roses.
According to operating data included in the earnings report, UPS generated $9.5 billion in U.S. domestic package revenue in the first quarter. If you were thinking that 2.4 percent wasn’t too bad, $233 million might sting a little. That’s about how much of the company’s $451 million Q1 growth in the segment can be attributed to the price increase implemented at the beginning of 2017.
Even without a peak in Q4, that puts nearly a billion-dollar price tag on the 2017 UPS rate increase.
All in all, the 6.2% overall rise in revenue equates to an additional $897 million so far this year and more than a quarter of it came directly out of shippers’ pockets via higher UPS rates.
In the name of capitalism, that might all sound OK were it not for the alarming rate at which retailers are closing their doors. Swaths of media reports put that number in the thousands, with some legacy retailers among the hardest hit.
And while plenty of the blame can be attributed to those companies’ failure to keep up with the times, the costs of keeping up with consumer demand often are most apparent at the loading dock. As the world waits for e-commerce to hit its peak, the two major global carriers continue to find innovative ways to charge customers more for services that, evidenced by holiday struggles in recent years, haven’t really changed much during that time.
In the end, the customer is left to figure out how to become more efficient while padding the pockets of their most necessary vendor with what little remains of their own margins. The scarcity of fast, reliable delivery options is forcing companies into a corner; either pay the carrier more each year or cease to exist in short order.
Seventy-five percent of supply chain executives that responded to a survey conducted by Transportation Impact this month said they were too busy to open a negotiation with their carrier. Meanwhile, high shipping costs continue to result in company’s overpaying their carriers by as much as 30 to 40 percent in some instances.
There is some good news. Companies that are making it a priority to revisit their FedEx and UPS rates do benefit from deeper discounts than have been available before. Now more than ever, smart shippers understand that need to compare shipping rates and leverage volume and spend levels for discounted shipping.
Transportation Impact is the industry leader in small package negotiation. Our team is comprised of former executive-level carrier pricing personnel and has more than 300 years of combined pricing experience. While other companies rely solely on data to determine what a company’s shipping rates should be, our pricing experts go a step farther. After Transportation Impact conducts a thorough analysis of a company’s carrier invoice data, our pricing team reviews and adjusts the results based on proven pricing experience. That’s why we are the only company in the industry that will guarantee its savings projections, in writing, to the tenth of one percent.
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