Price is Powerful

UPS released its third quarter earnings last week.  A key highlight:

The delivery company’s third quarter revenue rose 9.2% from the prior year to $23.2 billion, as the average revenue per piece UPS shipped increased 13%.  The number of items it shipped daily fell 2%, marking the second consecutive quarter that shipping volume fell after a roughly a decade of increases.  (Emphasis added.)

From the press release, revenues were up 9.2% year over year and operating profit was up 23.4%.  That is fantastic operating leverage for any business.  For the US, revenue was up 7.4%, driven by a 12.0% increase in revenue per piece.  UPS does not break out its mix in its press release but it is very clear, it charged more for the packages it delivered in Q3 2021 than it did in Q3 2020.  My guess is the 2% volume it lost was business that was not very profitable in the first place.  With supply chain and labor issues, spending resources on unprofitable business is a death knell.

Raising prices is never fun.  Most of us do not operate in industries where there is essentially a duopoly like UPS and Fed Ex; we face more competition than they do.  But the reality is, raising prices is one of the most effective levers businesses have to protect and increase profitability.  In the inflationary environment we are in, making sure you have margin is essential to survival.  

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