As global supply chain challenges intensify, with capacity constraints, worsening congestion, and rising costs becoming the norm, companies are searching for solutions. UPS has provided an answer with its impressive third-quarter earnings report. The Atlanta-based global shipping and logistics giant delivered strong results for Q3 2021 and expressed confidence heading into the holiday season.
United Parcel Service recently announced its financial results for the third quarter of 2021, with all key metrics showing significant growth that exceeded market expectations. The company reported total revenue of $23.2 billion, a 9.2% year-over-year increase. Adjusted earnings per share reached $2.65, also up 9.2%, while operating profit surged 23.4% to $3 billion.
"Our performance in the third quarter exceeded our expectations," said UPS CEO Carol Tomé during the earnings call. "This was driven by continued revenue quality improvements across all three of our business segments. Operating profit growth came from solid revenue gains and effective cost management. Each segment delivered year-over-year growth and double-digit operating margins. Through the first nine months of 2021, UPS has generated more operating profit than in any full year in our history."
Segment Performance Highlights
- U.S. Domestic Package: Revenue grew 7.4% to $14.208 billion, primarily due to a 12.0% increase in revenue per piece to $11.19. While all products showed strong growth, average daily package volume declined slightly to 19.835 million pieces, down 2.7% year-over-year.
- International Package: Revenue increased 15.5% to $4.72 billion, driven by strong growth across all regions. Revenue per piece rose 14.0% to $19.80. Average daily package volume was 3.456 million pieces, up 1.9% year-over-year.
- Supply Chain Solutions (including freight and logistics): Revenue grew 8.4% to $4.256 billion.
Strategic Focus: Empowering SMBs and Network Optimization
During the earnings call, Tomé emphasized UPS's commitment to enhancing its capabilities to support small and medium-sized businesses (SMBs), while noting that these improvements would also benefit larger customers who value UPS's end-to-end network. Expanding weekend delivery services was highlighted as a key initiative. UPS will complete the expansion of its U.S. weekend delivery services by this weekend, with Saturday residential and commercial pickup and delivery covering approximately 90% of the U.S. population.
"These Saturday services provide additional capacity for Sunday SurePost deliveries," Tomé explained. "Most importantly, we're unlocking additional weekend capacity without deploying additional capital, which benefits all customers."
Holiday Season Outlook: Preparing for Challenges
Looking ahead to the fourth quarter, Tomé acknowledged that the global supply chain market remains challenging, with persistent capacity constraints, congestion, and cost pressures. Nevertheless, she expressed optimism about UPS's prospects, emphasizing that once packages enter UPS's network, the company can ensure delivery. She also noted that capacity constraints outside the U.S. are benefiting UPS's freight business.
"In the U.S., we expect a strong peak season," Tomé said. "Through our planning, we believe we're well prepared to deliver a successful peak for UPS shippers, receivers, and shareholders."
She attributed part of UPS's confidence in handling peak season challenges to calendar factors—the company has one extra operating day this holiday season compared to last year. Additionally, UPS has expanded weekend delivery services and added extra sorting capacity.
"We expect consumer demand to exceed market capacity," Tomé noted. "We began working with our largest customers months ago and will remain in close contact with them throughout the peak shipping season. Our technology allows us to match daily capacity with customer demand and, when necessary, control the volume entering our network. These measures will minimize disruption costs and ensure high service levels."
Pricing Adjustments: Addressing Cost Pressures
While focusing on the holiday season, Tomé also revealed that UPS will announce its 2022 U.S. general rate increase (GRI) later this week, set at 5.9%. She stated that this adjustment reflects the value of UPS's services while accounting for cost inflation pressures.
UPS CFO Brian Newman noted during the earnings call that despite challenges from the pandemic, inflation, and inventory and labor shortages, the global economy continued to show strong growth in the third quarter.
"Against this backdrop, demand for our services remained high, and the pricing environment within the industry remained stable," Newman said. "We expect similar dynamics in the fourth quarter, and as we demonstrated in the third quarter, we'll continue to execute our strategy and capture profitable growth opportunities in the marketplace."
He referenced recent IHS forecasts projecting 3.8% global GDP growth and 4.9% U.S. GDP growth in the fourth quarter—both above historical GDP growth rates.
Expert Analysis: Strategic Adaptation
Jerry Hempstead, president of Hempstead Consulting, commented that UPS delivered an outstanding third quarter with strong volume growth. "UPS has done a great job controlling costs and raising prices, all of which has resulted in a positive three months for shareholders. But the earnings call also brought bad news for shippers, as the general rate increase will be 5.9%, and fuel surcharges will rise 1% in November—just in time for peak season," he said.
Hempstead also observed a decline in SurePost volume during the third quarter. "We saw this with FedEx's last earnings call too, but moving volume to their own drivers is very intentional and part of a pre-announced strategy," he explained. "UPS's shift from shippers choosing SurePost to traditional ground service is likely due to price increases, as the U.S. Postal Service has raised its charges to UPS, and UPS has passed those changes along. With so much volume going through enterprise systems that can compare rates, it's computers choosing ground over SurePost."
Rick Watson, founder and CEO of RMW Commerce Consulting, noted that the earnings call painted a picture of a disciplined company—one that clearly prioritizes and optimizes higher-margin SMB small package business. "What stands out most is how today's call contrasts sharply with FedEx's earnings call a few weeks ago," he said. "UPS is performing significantly better—they're growing packages, growing revenue, growing profits, improving network utilization, while reducing direct labor hours. That's impressive. FedEx reported higher labor costs, an inability to hire leading to reduced network efficiency, meaning package delivery times are lengthening and profitability is declining. Meanwhile, UPS is saying 'labor costs are higher, and we're managing it,' and they'll control volume entering the network to eliminate 'disruption costs.'"
UPS's strong third-quarter performance not only demonstrates its operational excellence and strategic execution but also signals significant growth potential in the challenging global logistics market. By empowering SMBs, optimizing network efficiency, proactively addressing peak season challenges, and adjusting pricing strategies, UPS is positioning itself for a more sustainable and profitable future.