News / UPS eyes expansion in China as improving markets continue to deliver profits

© Alexey Novikov

E-commerce, rising cross-border shipments and improved market conditions saw UPS boost operating profits across the board.

Second-half non-GAAP operating profits rose 9.7% to $4.23bn, on revenues up 8.2% to $31.42bn. Second-quarter operating profit rose 8.7% to $2.2bn.

The supply chain and freight segment saw revenue increase 12% in the second quarter, resulting in an operating profit of $238m. Both Freight Forwarding and UPS Freight saw improved tonnage, as retail inventory replenishment and improved aerospace boosted results.

Internationally, currency-neutral operating profit for the second quarter was $697m. The company said that “robust export growth continued at 12%, led by Europe and Asia”.

UPS said it would continue to invest in e-commerce. Speaking to analysts, CEO David Abney said: “Earlier this year we stepped up our pace of investment to accelerate the most sweeping transformation of our network in decades.

“We are investing heavily in new capacity and connected technology to capture the tremendous ecommerce and international growth opportunities we see.”

The integrator, which recently announced a partnership with SF Express, said it was keen to capture growth in China.

“China represents a great market opportunity for US businesses. We are creating special cross-border services to support customers who want to sell to Chinese consumers via ecommerce. These services, along with our recently announced joint-venture with SF Express, will enable us to leverage the vast reach of both companies. We have plans to add competitive shipping products in more international lanes as we expand the SF partnership.”

Domestically, UPS saw an 8.1% increase in revenue in the second quarter, bringing an operating profit of $1.39bn. The company said the growth was driven by e-commerce demand which had boosted UPS Air and Ground products. Next Day and Deferred Air shipments rose 6.4% and 11% respectively.

UPS is investing in “significant hub modernisation” and expansion projects in Arizona and Kansas. It is also developing a fourth regional hub in Indiana.

The operator noted that it may have received a boost from TNT’s customers after the European company suffered a cyber attack last month, which owner FedEx said was likely to materially affect the year’s results.

James Jay Barber, president UPS International, said: “We are seeing more business recently in Europe, It’s very balanced, but [in] this last quarter, Europe did have our highest growth rate.”

He added: “Customers have choice. And the choices they have in Europe, because of this unfortunate situation, are between us and many other competitors.”

Mr Abney said he was confident of the outlook, overall.

“Growth rates in Europe are expected to continue to be resilient, with most economies rising. And in Asia, the outlook for China has improved, with growth in that market now exceeding the previous forecast.

“The export market remains solid and we are aggressively positioning UPS products and network capability to take full advantage of cross-border expansion.”

The Teamsters union used the results announcement to put pressure on the company “to do what’s right”.

Local 2727 president Tom Boyle said: “UPS beat estimates and made billions in revenues, in part because of the hard work and dedication of the aircraft mechanics who work around the clock to keep everything running and on schedule.

“UPS needs to do what’s right for mechanics, shareholders and the company’s long-term success and come to fair contract agreement with the aircraft maintenance workers who keep UPS running.”

You can read the full results here.