UPS 2015 Annual Report Download - page 42

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
30
Volume
2015 compared to 2014
Our total volume increased in 2015, largely due to faster growing premium air products and continued growth in e-
commerce and overall retail sales. Business-to-consumer shipments, which represent more than 45% of total U.S. Domestic
Package volume, grew nearly 3% for the year and drove increases in both air and ground shipments. Business-to-business
volume grew 1% in 2015, largely due to increased volume from the retail industry including the use of our solutions for omni-
channel (including ship-from-store and ship-to-store models) and returns shipping.
Among our air products, we experienced increased volume for our deferred air services in 2015, particularly for those
products most aligned with business-to-consumer shipping, such as our residential Second Day Air Package and Three Day
Select products. We also experienced solid growth in our business-to-business deferred air volume, largely due to increases in
the retail sector. Next Day Air volume increased 3.3% in 2015, due to strong growth in e-commerce.
The increase in ground volume in 2015 was driven by growth in residential ground and SurePost volume and business-to-
business shipping activity. The continued growth in e-commerce drove demand for our SurePost service, with volume
increasing 3% in 2015. The increase in business-to-business ground volume was largely due to growth in omni-channel retail
volume, the increased use of our returns service offerings and the growth in shipments from the retail sector.
2014 compared to 2013
Our total volume increased in 2014, largely due to continued solid growth in e-commerce and overall retail sales.
Business-to-consumer shipments, which represent more than 45% of total U.S. Domestic Package volume, grew 12% for the
year and drove increases in both air and ground shipments. UPS SurePost volume increased more than 45% in 2014, and
accounted for approximately half of the overall volume growth for the segment. Business-to-business volume grew 3% in 2014,
largely due to increased volume from the retail industry, including the use of our solutions for omni-channel (including ship-
from-store and ship-to-store models) and returns shipping; additionally, business-to-business volume was positively impacted
by growth in shipments from the industrial, automotive and government sectors.
Among our air products, volume increased in 2014 for both our Next Day Air and deferred services. Solid air volume
growth continued for those products most aligned with business-to-consumer shipping, particularly our residential Second Day
Air package product. Our business-to-business air volume increased slightly as well, largely due to growth in the retail and
industrial sectors. This growth was slightly offset by a decline in air letter volume, which was negatively impacted by some
competitive losses and slowing growth in the financial services industry. The growth in premium and deferred air volume
continues to be impacted by economic conditions and changes in our customers' supply chain networks; the combination of
these factors influences their sensitivity towards the price and speed of shipments, and therefore favoring the use of our
deferred air services.
The increase in ground volume in 2014 was driven by our SurePost service offering, which had a volume increase of
more than 45% for the year; additionally, we experienced moderate volume growth in our traditional residential and
commercial ground services. Demand for SurePost and our traditional residential products continues to be driven by business-
to-consumer shipping activity from e-commerce retailers and other large customers. The growth in business-to-business ground
volume was largely due to growth in omni-channel retail volume, the increased use of our returns service offerings, and the
growth in shipments from the industrial sector.
Rates and Product Mix
2015 compared to 2014
Overall revenue per piece increased 0.3% in 2015, and was impacted by changes in base rates, customer and product mix,
and fuel surcharge rates.
Revenue per piece for our ground and air products was positively impacted by an increase in base rates which took effect
on December 29, 2014 and an increase in surcharge rates that took effect November 2, 2015. We implemented an average 4.9%
net increase in base and accessorial rates on UPS Next Day Air, UPS 2nd Day Air, UPS 3 Day Select and UPS Ground.
Additionally, a pricing change involving the application of dimensional weight pricing to all UPS Ground services took effect
on December 29, 2014. On November 2, 2015, the surcharge increased for Over Maximum Packages and the indices for
Ground, Air and International fuel surcharges were adjusted.