UPS 2007 Annual Report Download - page 40

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was positively impacted by base rate increases and the weakening of the U.S. Dollar against several major
foreign currencies in 2007, but was adversely affected by a lower fuel surcharge rate applied to our U.S. origin
international air products.
Export volume increased throughout the world. Asian export volume grew strongly in key markets during
the year, especially China. Asian export volume continues to benefit from our geographic service expansion, as
well as strong economic growth, which benefits our intra-Asian package business. To continue this expansion,
we received authority in 2007 to operate six daily flights between the U.S. and Nagoya, Japan. We are also
constructing a package and freight air hub in Shanghai, China that is expected to open in 2008. This hub will link
Shanghai to our international air network, with direct service to Europe, Asia, and the Americas.
European export volume also grew solidly, largely due to continued growth in the transborder business and
improved economic and industrial output in the European Union. U.S. export volume increased at a slower pace.
Non-U.S. domestic volume increased 2.2% for the year, and was impacted by growth in several major European
countries and Canada.
Export revenue per piece increased 3.9% for the year, largely due to rate increases and favorable exchange
rates, but was adversely impacted by relatively higher growth in lower revenue per piece transborder products,
and a reduction in certain fuel surcharge rates. Non-U.S. domestic revenue per piece increased 9.6% for the year,
and was affected by rate increases and favorable exchange rates. Total average revenue per piece increased 2.7%
on a currency-adjusted basis, and the overall change in segment revenue was positively affected by $464 million
in 2007 due to currency fluctuations, net of hedging activity.
In January 2007, we increased rates 6.9% for international shipments originating in the United States
(Worldwide Express, Worldwide Express Plus, UPS Worldwide Expedited and UPS International Standard
service). Rate changes for international shipments originating outside the United States vary by geographical
market and occur throughout the year.
Also in January 2007, we modified the fuel surcharge on certain U.S.-related international air services by
reducing the index used to determine the fuel surcharge by 2%. The fuel surcharge for products originating
outside the United States continues to be indexed to fuel prices in our different international regions. Total
international fuel surcharge revenue increased by $12 million during the year due to increased volume, but was
partially offset by the reduction in the fuel surcharge index.
International Package operating profit increased $121 million, or 7.1%, for the year, primarily due to the
volume and revenue per piece improvements described above. The change in operating profit was also positively
affected by $153 million during the year due to favorable currency exchange rates, net of hedging activity.
International Package operating profit was adversely affected in 2007 by charges related to the aircraft
impairment ($62 million) and the SVSO ($7 million), both of which are discussed further in the “Operating
Expenses” section. Operating profit was negatively impacted by fuel, as the increase in fuel surcharge revenue
was more than offset by the increase in fuel expense. The adverse impact of the aircraft impairment, SVSO
charge, and fuel were the primary causes of the 100 basis point decline in operating margin to 17.8%.
2006 compared to 2005
International Package revenue improved $1.112 billion, or 13.9%, for the year, primarily due to the 11.9%
volume growth for our export products and the impact of acquisitions completed in 2005. Total international
revenue per piece declined slightly for the year due to changes in product mix, as lower-yielding domestic
products comprised a larger proportion of overall international volume. The change in revenue was positively
affected by $83 million during the year due to currency fluctuations, net of hedging activity. Revenue increased
by $247 million during the year due to business acquisitions completed previously.
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