Revenues for United Parcel Service’s (UPS) Supply Chain & Freight segment increased by 5.1% to $9,393 million in 2014, from $8,935 million in 2013. Adjusted operating profit increased by 6.5% to $718 million year-over-year.
Growth in operating expenses was driven by higher purchased transportation and employee compensations. Operating expenses increased by 8.5% to $8,961 in 2014, from $8,261 million in 2013. Adjusted operating margins increased to 7.6% from 7.5% in 2013.
Much of the segment’s growth came from UPS’s Freight Forwarding business, which witnessed increased demand for the North American air freight and ocean forwarding products. However, continued excess capacity on major trade lanes out of Asia capped the segment’s growth. The distribution business also contributed high single-digit revenue growth and steady margin expansion. Expansion of the UPS healthcare business also contributed to the growth.
Growth in volume and tonnage on international air freight and an overall market demand growth pushed the segment’s revenues up in the past year. The segment saw a strong 2.5% year-over-year growth in its shipments per day, from 41,500 to 42,500. The company’s mail services, healthcare, and retail distribution solutions saw growth, increasing the company’s logistics business.
Due to industry overcapacity in key trade lanes, UPS had to give lower rates to customers. It still managed to increase its revenues per hundredweight by 2.7%, from $22.05 in 2013 to $22.64 in 2014.
Other freight providers include FedEx Freight (FDX), Old Dominion Freight (ODFL), YRC Worldwide (YRCW), Con-way (CNW), ABFS, and Saia (SAIA). FDX enjoys the highest market share of 16% among its competitors. UPS enjoys the fourth position. UPS forms 3.59% holding of the Industrial Select Sector SPDR (XLI) and 7.65% holding of the iShares Transportation Average ETF (IYT).