How Is UPS Increasing Its Revenues From E-Commerce?

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UPS: United Parcel Service logo
UPS
United Parcel Service

In the past few years, the boom in the e-commerce sector has positively impacted the revenues of logistics giants FedEx (NYSE: FDX) and UPS (NYSE:UPS) who provide last-mile delivery for online retailers. For UPS, most of the domestic e-commerce shipments are processed through UPS Domestic, which includes the company’s offerings such as UPS SurePost, UPS MyChoice and UPS i-Parcel. Per the latest data, the e-commerce sales have been increasing by 15% on a year over year(y-o-y) basis. The uptick in e-commerce sales has positively impacted the revenues of UPS Domestic Package, which have shown single digit growth y-o-y. Despite this revenue growth, its share in e-commerce sales has consistently declined over the past seven quarters.

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Currently, e-commerce deliveries contribute 46% of the total domestic packages that the company ships, and this is expected to rise to 51% by 2019. The declining trend in share does not bode well for the company, as it risks losing out on the tremendous growth opportunity that the booming e-commerce sector offers. In order to cater to the needs of the e-commerce sector, the company has taken a slew of measures that should help the company arrest this trend.

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In the first nine months of the current fiscal year, UPS’s capital expenditures have increased 11% over the prior year quarter to $1.8 billion. the company plans to automate its existing facilities in California, Colorado, Illinois, Chicago, Los Angeles and Texas this year, and expects productivity to improve by 20-30% due to automation.

Moreover, the company recently announced its plans to procure 14 new Boeing 747-8 jumbo freighters along with options to buy 14 more in the future. The new planes would help the company address the needs of its customers and significantly improve its delivering capabilities by providing faster and quicker shipping.

All these measures are expected to help the company arrest the decline in its market share.


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