A Look At UPS’ Incredible Job-Killing Efficiency Gains

Last month we explained how UPS earnings basically described the global economy, as it managed to strengthen earnings by ramping up productivity and tightening the screws on its labour costs.

In a note out today, Deutsche Bank’s Justin Yagerman highlights just how impressive UPS has been at improving productivity, both on the labour and on the environmental side, over the years.

UPS continued to demonstrate strong productivity in Q1 as U.S. Domestic miles driven declined 2% y/y, direct labour hours were down 3% y/y, and domestic block hours were down 1% y/y in the quarter despite challenging weather. Cumulatively, UPS has reduced U.S. domestic miles driven by more than 10% between Q1 2009 and Q1 2011. This improvement has occurred despite essentially flat average daily domestic package volume during this time as UPS has increasingly leveraged IT, Package Flow Technology, and network optimization. We believe these improvements are sustainable and should continue to drive strong incremental margins (which ranged between 39-94%, averaging 56% since 2009) given an improving domestic pricing environment and additional productivity gains from technology and network optimization. Below we have illustrated the y/y declines in miles driven versus average daily package volumes since 2009.

10% fewer miles is pretty remarkable. It’s great for the environment and for fuel costs, and bad news for drivers.

Here’s a look at how steadily UPS has slashed miles-driven over the years.


[credit provider=”Deutsche Bank”]