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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
39
Freight revenue decreased $167 million in 2015, driven by lower tonnage of 7.1% and a $157 million decrease in fuel
surcharge revenue due to lower diesel fuel prices. The decline in average daily shipments and the reduction in weight per
shipment was impacted by revenue management initiatives, customer mix, and an overall decline in market demand. LTL
Revenue per hundredweight increased slightly, as LTL base rate increases averaging 4.9% took effect on December 29, 2014,
covering non-contractual shipments in the United States, Canada and Mexico.
Revenue for the other businesses within Supply Chain & Freight increased $99 million in 2015, due to revenue growth
from our service contracts with the U.S Postal Service and at The UPS Store, UPS Capital and UPS Customer Solutions.
2014 compared to 2013
Forwarding and logistics revenue increased $266 million in 2014 compared with 2013. Forwarding revenue increased for
the year, primarily due to volume and tonnage growth in our international air freight, North American air freight and ocean
freight businesses, which were impacted by improving overall market demand. This was partially offset, however, by lower
rates charged to our customers in our international air forwarding business, which was largely due to industry overcapacity in
key trade lanes, particularly the Asia-outbound market. Revenue for our logistics products increased in 2014, as we
experienced solid growth in our mail services, healthcare and retail distribution solutions.
Freight revenue increased $166 million in 2014, driven by solid increases in average daily LTL shipments and LTL
revenue per hundredweight. The increase in average daily LTL shipments in 2014 was impacted by overall U.S. economic
growth and improving LTL market conditions. The increase in LTL revenue per hundredweight was largely due to our focus on
yield management, as well as general rate increases averaging 4.4% and 5.9% that took effect in March 2014 and June 2013,
respectively, covering non-contractual shipments in the United States, Canada and Mexico. LTL fuel surcharge revenue
increased by $13 million in 2014 compared with 2013, due to changes in diesel fuel prices and overall LTL shipment volume.
Revenue for the other businesses within Supply Chain & Freight increased $26 million in 2014, due to revenue growth at
The UPS Store, UPS Capital and UPS Customer Solutions; however, this was partially offset by a decline in revenue from our
contract to provide domestic air transportation services for the U.S. Postal Service.
Operating Expenses
2015 compared to 2014
Forwarding and logistics adjusted operating expenses increased $91 million in 2015 compared with 2014. This increase
was largely due to the acquisition of Coyote during the third quarter of 2015, partially offset by the impact of currency
exchange rate movements and lower fuel expense. Purchased transportation expense increased by $37 million in 2015 due to
the acquisition of Coyote offset by lower tonnage, fuel expense, and the impact of foreign currency exchange rates. The
remaining operating expense increase was related to several other expense categories, including payroll and benefits expense.
Freight adjusted operating expenses decreased $151 million in 2015, while the total adjusted cost per LTL shipment
decreased 1.9%. The decrease in adjusted operating expense was largely due to the cost associated with operating our linehaul
network (which decreased $142 million) and decreases in pick-up and delivery expenses. The decreases in network costs and
pick-up and delivery expenses were driven by a reduction in fuel expense and expense for outside transportation carriers
(largely due to lower LTL volume and fuel surcharges passed to us from the carriers). These benefits were partially offset by an
increase in other operating expenses of $3 million for 2015 largely due to higher pension costs (impacted by lower discount
rates for UPS-sponsored plans).
Operating expenses for the other businesses within Supply Chain & Freight increased $76 million in 2015 compared with
2014 primarily due to UPS Capital and our service contracts with the U.S. Postal Service.