UPS Plans to Avoid the Holiday Blues

Type:  Announcements  

UPS Plans to Avoid the Holiday Blues

10/27/2015 | 03:15pm US/Eastern

By Laura Stevens 

United Parcel Service Inc. says this holiday season will be different. Really

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On Tuesday the Atlanta-based package delivery giant said it expects a 10% increase in packages over the holidays, but outlined how it will handle the surge this time without another overrun on costs or being caught short-handed.

 

Its plans include last-minute hiring--bringing workers on just days before they're needed, dubbed "just-in-time labor." UPS also said it would eliminate some package sorting shifts.

 

At the same time, the company reported a slight dip in third-quarter revenue due to lower fuel surcharge revenues, currency effects and a weaker economy. Yet it posted a 3.5% increase due, in part, to growth in its international segment.

 

UPS is under pressure to prove to Wall Street this year that it can better manage the holidays. UPS spent about $200 million more than it expected in each of the last two years; first as it was deluged with unexpected packages in 2013 and then as it spent to overhire and overcompensate last year, during periods that turned out to be slower than expected.

 

This year, UPS said it expects to deliver more than 630 million packages between Black Friday and New Year's Eve, compared with about 572 million a year ago.

 

"In regards to cost containment in the fourth quarter, we're certain that we can adjust the network and be flexible enough to take the cost out," said Myron Gray, head of U.S. operations, on an earnings call with analysts.

 

UPS is reducing the number of special holiday-season package sorting shifts to 40 from 49 and starting some later due to a 6% increase in capacity this year as it added new hubs and technology. It also plans to bring its 95,000 seasonal hires on just two or three days before they're needed instead of for the full peak season, CFO Richard Peretz said in an interview.

 

"We'll bring the labor on as we need it and not all at one time," Mr. Peretz said.

 

UPS is again working with customers to try to predict and control volume, something it likens to running a control tower at an airport. If the package isn't urgent, for example, it might be shipped Tuesday instead of Monday, when packages have built up over the weekend.

 

It's a gamble. A harsh winter storm or an unexpected surge in online sales could throw UPS's delicately balanced plan off kilter. Add to that, a storm usually keeps more consumers in their homes, fueling online sales.

 

The company has a special team in place it will send out to tackle weather or other emergencies, Mr. Peretz said.

 

Both UPS and rival FedEx Corp.--which said Monday it expects holiday volumes will increase by 12% this year to 317 million deliveries--are casting votes of confidence in the U.S. economy and consumers at a time when retailers are sitting on high levels of inventory and other freight companies have reported weak demand for shipments leading up to the holidays.

 

Some of that is due to the strong growth projected for e-commerce, which may come at the cost of traditional brick-and-mortar retail, Mr. Peretz said.

 

"Obviously the economic news has been mixed, but at the end of the day--even on the consumer side--you see a larger, faster paced strength in the e-commerce space as compared to retail," Mr. Peretz said. "Every online survey shows again that that's going to be high demand and all the online commerce companies are planning for that."

 

For the quarter ended Sept. 30, UPS posted earnings of $1.26 billion, or $1.39 a share, up from $1.21 billion, or $1.32 a share, a year earlier. Revenue declined 0.3% to 14.24 billion.

 

The company reaffirmed its full-year outlook of the high-end range of between $5.05 and $5.30 earnings per share.