Expansion Of Premium Services May Help UPS Improve Yields
At a time when consumers have shifted preference towards non-premium, time-delayed shipping options, United Parcel Services (NYSE:UPS) is focusing on enhancing its premium and time-efficient services. UPS recently announced the expansion of one of its premium services, UPS Next Day Air Early AM. [1] It is a service wherein packages are delivered the next day by 8 am and also operates on Saturdays. UPS charges a premium rate for this service, and such premium services may help improve UPS’s depressed yields (revenue per package).
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One of UPS’s healthcare clients, Octicon, a hearing aid manufacturer, prefers to use UPS’s Next Day Air Early AM service since it is imperative that its customers receive their hearing aids as soon as possible, or else they will face difficulties in their normal daily activities. With its Next Day Air Early AM service, UPS intends to target businesses with time sensitive requirements. Businesses involved in healthcare, legal practice, financial services or technology services would want to receive or send out packages at the earliest in order to offer better service to their customers.
Expansion of its Next Day Air Early AM service to cover more ZIP Codes will help UPS cater to a broader audience of such businesses and boost its package volumes. The Early AM services provided by UPS are not just limited to the U.S., it also offers international package delivery from the U.S. by 9 am. UPS’s Early AM services now cover the largest number of ZIP Codes and offers the earliest delivery times compared to other players in the industry.
Growth In Premium Services Could Help In Yield Improvement
Lately there has been a shift in customer preference towards economical means of shipping packages, even if it means waiting a few extra days for their shipments to get delivered. The move towards cheaper shipping options has also been driven by growth in e-commerce. E-retailers prefer to keep their shipping costs to a minimum and pass on any cost savings to their customers.
The increase in demand for economical services, such as UPS SurePost, has helped boost UPS’s domestic volumes. However, it has also lead to a decline in its revenue per package since these services are not charged at premium rates and also command lower margins. After growing 4.2% and 5.7% in 2010 and 2011 respectively, UPS’s revenue per package was stagnant in 2012 and declined 0.6% in 2013. [2] UPS’s revenue per package declined 1.4% year-over- year in the first quarter of 2014 driven by an increase in non-premium services. [3]
UPS’s focus on expansion of coverage area of its premium services will enable it to cater to more businesses. As more and more businesses opt for these services to send out time-critical packages, UPS’s premium package volumes will grow and help in improving its yield.
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Notes:- UPS Expands Delivery Coverage for Earliest Morning Service, May 22 2014, www.ups.com [↩]
- UPS Quarterly Historical Income and Operating Data, January 30 2014, www.ups.com [↩]
- UPS First Quarter 2014 Results, April 24 2014, www.ups.com [↩]