UPS 2005 Annual Report Download - page 36

Ground revenue per piece increased 0.9% for the year primarily due to the impact of a rate increase that
took effect in 2004, but growth was adversely impacted by approximately 130 basis points due to the removal of
the fuel surcharge on ground products, as discussed below. Next Day Air revenue per piece increased 6.6%,
while deferred revenue per piece increased 6.0%, primarily due to the shift in product mix from letters to
packages, the rate increase, and the modified fuel surcharge on domestic air products.
On January 5, 2004, we increased rates for standard ground shipments by an average of 1.9% for
commercial deliveries. The ground residential surcharge increased $0.25 to $1.40 over the commercial ground
rate. An additional delivery area surcharge of $1.00 was implemented for commercial deliveries in certain ZIP
codes. Rates for UPS Hundredweight increased 5.9%. In addition, we increased rates for UPS Next Day Air an
average of 2.9% and increased rates for deferred services by 2.9%.
In addition, in 2004 we discontinued the fuel surcharge on ground products, while we began to apply a new
indexed surcharge to domestic air products. This indexed fuel surcharge for the domestic air products is based on
the U.S. Energy Department’s Gulf Coast spot price for a gallon of kerosene-type jet fuel. Based on published
rates, the average fuel surcharge applied to our air products during 2004 was 7.07%, compared with the average
surcharge of 1.47% applied to both air and ground products in 2003, resulting in an increase in domestic fuel
surcharge revenue of $290 million during the year.
U.S. Domestic Package operating profit increased $45 million, or 1.2%, primarily due to the increase in
volume and revenue growth discussed previously, but was somewhat offset by increased aircraft impairment
charges ($91 million in 2004 compared to $69 million in 2003) and a $63 million pension charge related to the
consolidation of data systems used to collect and accumulate plan participant data. Domestic operating margin
declined 70 basis points, and was impacted by the aircraft impairment and pension charges noted above, as well
as the sale of our Aviation Technologies business unit.
During the third quarter of 2003, we sold our Aviation Technologies business unit and recognized a pre-tax
gain of $24 million ($15 million after-tax, or $0.01 per diluted share), which is recorded in other operating
expenses within the U.S. Domestic Package segment. The operating results of the Aviation Technologies unit
were previously included in our U.S. Domestic Package segment, and were not material to our consolidated
operating results in any of the periods presented.
International Package Operations
2005 compared to 2004
International Package revenue improved $1.168 billion, or 17.2%, for the year, primarily due to the 13.9%
volume growth for our export products and revenue per piece improvements. The improvements in revenue per
piece were impacted by rate changes, currency fluctuations, and the fuel surcharge applied to international
shipments. Revenue increased $121 million during the year due to currency fluctuations, net of hedging activity,
and also increased by $133 million during the year due to business acquisitions.
In January 2005, we increased rates 2.9% for international shipments originating in the United States, which
includes our Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International
Standard services. Rate changes for international shipments originating outside the United States vary by
geographical market and occur throughout the year.
In January 2005, we modified the fuel surcharge on U.S. export products by setting a maximum cap of
9.50%, which was increased to 12.50% effective in October 2005. The fuel surcharge for products originating
outside the United States continues to be indexed to fuel prices in our different international regions, depending
upon where the shipment takes place. Total international fuel surcharge revenue increased by $258 million
during the year, due to higher jet fuel prices and increased international air volume.
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