UPS 2013 Annual Report Download - page 40

Download and view the complete annual report

Please find page 40 of the 2013 UPS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
28
Revenue
The change in overall revenue was impacted by the following factors for the years ended December 31, 2013 and 2012,
compared with the corresponding prior year periods:
Volume Rates /
Product Mix Fuel
Surcharge
Total
Revenue
Change
Revenue Change Drivers:
2013 / 2012 3.7% 0.5% (0.5)% 3.7%
2012 / 2011 2.8% 0.6% 0.2 % 3.6%
Volume
2013 compared to 2012
Our overall volume increased in 2013 compared with 2012, largely due to continued solid growth in e-commerce and
overall retail sales; however, the increase in volume was hindered by slow overall U.S. economic and industrial production
growth. Business-to-consumer shipments, which represent over 40% of total U.S. Domestic Package volume, grew
approximately 8% for the year and drove increases in both air and ground shipments. Growth accelerated during our peak
holiday shipping season, as business-to-consumer volume grew over 11% in the fourth quarter of 2013, and business-to-
consumer shipments exceeded 50% of total U.S. Domestic Package volume for the first time. Business-to-business volume
increased slightly in 2013, largely due to increased shipping activity by the retail industry; however, business-to-business
volume was negatively impacted by slowing industrial production.
Among our air products, volume increased in 2013 compared with 2012, as growth in our deferred products more than
offset a small decline in our Next Day Air services. Solid air volume growth continued for those products most aligned with
business-to-consumer shipping, including our residential Second Day Air package and residential Next Day Air Saver products.
Next Day Air letter volume decreased approximately 7% for the year, and was negatively impacted by competitive losses and
slowing growth in the financial services industry. Our business-to-business air volume continued to be impacted by sluggish
economic conditions in the U.S., low levels of inventory replenishment among our customers and changes in our customers'
supply chain networks. The combination of these factors influenced our customers' sensitivity towards the price and speed of
shipments, and therefore the use of our premium air services.
The increase in ground volume in 2013 was primarily attributed to our traditional residential service offerings and
SurePost. Demand for these residential products continues to be driven by business-to-consumer shipping activity from e-
commerce retailers and other large customers. Business-to-business ground volume also showed a small increase, and was
positively impacted by the overall expansion of the U.S. retail sector; however, continued weakness in industrial production
hindered growth. The increased use of omni-channel retailing (including ship-from-store and ship-to-store models) by
customers is also positively impacting volume growth for both our residential and commercial ground products.
2012 compared to 2011
Our overall volume increased in 2012 compared with 2011, largely due to continued solid growth in retail e-commerce
and strong customer demand for our SurePost product. Business-to-consumer shipments, which represent slightly over 40% of
total U.S. Domestic Package volume, grew rapidly and drove growth in both air and ground shipments; however, business-to-
business volume remained relatively flat in 2012 compared with 2011. This can be attributed to multiple trends that have
prevailed over the past few years, including the migration of traditional retail to online retail, the lack of growth in small and
medium-size enterprises and reduced business investments attributed to policy uncertainty.
Among our air products, Next Day Air letter and package volume both experienced solid increases in 2012, with
particular growth in our Next Day Air Saver products. The higher volume for our deferred air products, which increased 5.7%
for the year, was primarily due to healthy demand for our residential package services. The overall growth in our air products
was driven primarily by business-to-consumer shipments from e-commerce retailers, while our business-to-business air volume
declined slightly.