Dive Brief:
- UPS reported that a healthy market for e-commerce deliveries boosted its second quarter revenue and profit, and that the e-commerce segmented of its business may grow faster throughout this year than the company first thought.
- UPS's Q2 revenue climbed 3.8% compared the second quarter of 2015, reaching $14.63 billion. Profit rose 3.2% to $1.27 billion. The improving returns are due in part to UPS raising its delivery prices for bulky e-commerce packages, though the company also has started investing in alternative delivery options like Smart Lockers, as well as advanced routing software.
- UPS also noted that some of its industrial shipping customers experienced increased inventory holdover during the quarter, which did lead to weaker performance in UPS's traditional business-to-business delivery market.
Dive Insight:
This is the second quarter in a row that e-commerce growth helped UPS rock a pretty strong earnings report, just months after the company and rival shippers struggled to keep up with e-commerce delivery promises during the holiday season.
UPS is in an interesting position where increasing e-commerce activity is right now driving tremendous financial returns, but the fact that some of that success has come from higher delivery prices is not really all that encouraging. It would not be a surprise in the near future to see retailers and customers re-assess their delivery options to avoid such hikes.
Also, the e-commerce logistics and fulfillment model is rapidly changing, and UPS eventually may face a cold, hard reality in which Amazon, currently a big contributor to its strong e-commerce bottom line, starts doing more of its own deliveries,
UPS's e-commerce success isn't entirely reliant on price hikes or an Amazon. The company, like other shippers, is exploring alternative ways to put packages in the hands of customers, and it's investing in new software that can help it realize efficiencies in the high-cost e-commerce delivery game. But even if UPS continues to get a nice boost from e-commerce in the short term, it's hard to fight the feeling that another shoe—or maybe several shoes—will drop at some point.
