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UPS: What Drove Its Supply Chain Growth in Q2 2018?

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UPS’s Supply Chain revenues

Earlier in this series, we reviewed United Parcel Service’s (UPS) International Package segment. In this section, we’ll take a close look at its Supply Chain and Freight segment’s performance in the second quarter.

UPS’s Supply Chain and Freight segment contributes ~20.0% to the company’s revenues. In the second quarter, the division reported revenues of $3.5 billion, up 16.1% from $3.0 billion in the second quarter of 2017. The key divisions in this main segment are Forwarding, Logistics, Freight, and Other.

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Inside the segment’s revenue growth

The Forwarding division accounts for the largest share of the Supply Chain and Freight segment’s revenues. In the second quarter, revenues from Forwarding accounted for 47.4% of the segment’s total revenues compared with 44.7% in the second quarter of 2017. 

The Forwarding division’s revenues jumped 23.2% to $1.6 billion in the second quarter from $1.3 billion in the second quarter of 2017. Logistics revenues grew 9.2% YoY (year-over-year) to $784.0 million from $718.0 million. 

Freight revenues rose 13.0% YoY to $853.0 million compared to $755.0 million. Other revenues totaled $204.0 million in the second quarter, up 4.6% from $195.0 million in the second quarter of 2017.

LTL (less-than-truckload) revenues, which are included in the Freight division, rose 11.0% to $726.0 million in the quarter from $654.0 million in the comparable period of 2017. Less-than-truckload revenues per hundredweight grew 7.4% to $25.36 from $23.62. However, LTL shipment growth was flat, implying no volume change in the second quarter. LTL weight per shipment rose 3.3% YoY to 1,084 pounds from 1,049 pounds.

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Management’s outlook

United Parcel Service expects increased tonnage and better pricing in the Supply Chain and Freight segments in 2018. The company expects its International Air Freight and Coyote truckload brokerage business to drive the revenue and earnings growth this year. 

Focusing on middle-market customers as well as pricing initiatives are expected to be UPS’s major actions for the segment. The booming healthcare industry should also push the company’s Logistics (IYT) division’s revenue growth in 2018.

Industry ETFs

United Parcel Service is a global parcel delivery company, and transportation and logistics companies are included in the industrial sector. The iShares Global Industrials ETF (EXI) has 1.84% weight in UPS stock. The other major logistics companies included in this ETF are Union Pacific (UNP) with 2.59% weight, Canadian National Railway (CNI) with 1.43% weight, and CSX (CSX) with 1.39% weight. 

Was UPS able to expand its operating margins in the second quarter? We’ll find out in the next article.

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