UPS: Weakest LTL environment in decades

      UPS reported fourth quarter net profit of $254 million compared to a loss of $2.6 billion in the same 2007 period.

      The company said fourth quarter 2008 revenue was $12.7 billion, down from $13.4 billion in the same 2007 period.

      UPS’s fourth quarter 2008 results include the impact of a $575 million non-cash impairment charge primarily related to the UPS Freight business unit due to an extremely challenging LTL (less-than-truckload) environment.

      Reported results for the 2007 fourth quarter included a $6.1 billion charge in the U.S. domestic package segment related to the withdrawal of UPS employees from the Central States Pension Plan.    That withdrawal followed ratification of a long-term national master agreement with the International Brotherhood of Teamsters.

      The severe decline in economic activity around the world resulted in sharply lower package and freight volumes for UPS, said Scott Davis, UPS chairman and chief executive officer.

      To trim costs UPS said it has consolidated operating districts, reduced air segments and eliminated some package handling operations as well as freezing management salaries and suspending the match for its 401(k) plans.

      For the three months ended Dec. 31, consolidated package volume declined 3.7 percent to 1 billion pieces on 5 percent lower revenue.    It said declining fuel costs provided a benefit in the quarter, which was more than offset by the effects of economic deceleration around the world.      The company said its three major segments performed as follows:

      • U.S. package revenue for the fourth quarter was $7.99 billion, down from $8.31 billion from the same 2007 period. Total U.S. volume decreased 4.4 percent with ground volume down 3.7 percent and Next Day Air declining 10.1 percent.

      • International package revenue was $2.64 billion for the quarter, down from $2.87 billion in the same 2007 period. Total export volume increased 1.6 percent in the fourth quarter, which UPS said outpaced the market. However, revenue and revenue per piece declined 8 percent primarily due to a shift away from premium products, general economic conditions and a stronger U.S. dollar.

      • Supply Chain and Freight had revenue of $2.07 billion for the quarter, down from $2.22 billion in the same 2007 period. The segment had an operating loss of $495 million, including the effect of the

$548 million UPS Freight goodwill impairment. Declines in UPS Freight profitability weighed on segment results. LTL revenue declined 9.6 percent with shipments per day down 8.2 percent in what UPS said was the weakest LTL environment in decades.

      Despite tough economic conditions that caused revenue declines, the company said its forwarding and logistics operations continued to demonstrate profit improvement.

      It pointed to health care as an area of focus where UPS has invested to provide customers with solutions to their supply chain needs.

      Kurt Kuehn, chief financial officer, said 2009 will be one of the most difficult in UPS's history. Since economists do not expect any meaningful recovery until 2010, earnings in 2009 will suffer.    Lower volume levels and reductions in package weight will put further pressure on margins. We anticipate the first quarter will be weak, with slight improvements later in the year as initiatives take hold.

Source: American Shipper