Four Q3 2024 UPS Earnings Notes You Must Know For This Holiday Season

Here are four takeaways from UPS earnings that every eCommerce operator should know:

1 - "100 UPS customers represent 60% of the volume in their network, and 85% of the peak surge."

I hadn't heard these numbers before. But when you consider that UPS delivers parcels for 1.6 million shippers each day, only 100 truly matter.

If you ever wonder why logistics is a volume game, look no further. Volume and density are critical for profitability. Logistics companies targeting SMB cannot afford the infrastructure improvements to automate without impacting their customer's rates (cost more) or their own profitability (slimmer margins).

2 - Volume growth is up in the US since May, a lot from Temu and Shein

This is following 9 quarters of weaker demand. 6.5% volume growth in Q3 with a large portion from these two shippers. UPS has adjusted what it can - moving these SurePost parcels into their main network where possible to control the profitability damage on these late-injected short-haul parcels.

The influence of these two shippers has changed the dynamic from Air to more ground, and even more to SurePost -- 60% of which hands off to the USPS (this is their lowest-margin business).

UPS did make a curious comment that "online sales slowed" in the quarter, it doesn't mean declined y/y, however.

3 - Margins are up based on the actions the company is taking. Why?

* Wage inflation has come down from 12% y/y in 2Q to 5.2% in Q3 y/y, based on annualizing the union agreement.

* The company is shrinking its management teams as well as its network size, and increased the productivity of its automated hubs by 5%. These automated hubs handle 63% of domestic network volume -- so are a point of high leverage.

* Additionally, UPS completed 45 operational closures, contributing to an 8% improvement in pieces for workforce hour. This alone represents an offset in 50% of the costs of the union wage increase.

All things helping margin.

4 - Due to Compressed Period, Holiday Could Move More Into Physical Stores

* As everyone knows, this is the most compressed holiday shipping period since 2019 with only 17 shipping days. An interesting comment from UPS CEO:

"...because of the tightness of the shipping season that many customers will go into a store to complete their holiday purchase."

I had not heard such a prediction before, but it will be interesting to watch. No doubt, UPS received this information from its top shipping customers which represent most of their volume.

All in all, a cautiously optimistic holiday season with forecasts still all over the map. Peak periods are expected to be up, albeit nominally at 3%.

But keep this in mind: if AOVs are compressed due to pricing pressure, then a 3% increase in volume will not offset the decline in pricing. That means from a GMV perspective we could be looking at a flat to down season for many retailers from a top-line point of view.