"Right-size" the network
 

Looks like some changes may be in store in 09.


Overnight Gets Darker
11/3/2008
Paul Page
Editor in Chief

Overnight air express traffic is in free-fall at UPS, dropping to its
lowest level in some six years.

The nation's largest transportation company said the 9.8 percent decline
in Next-Day Air volume in the third quarter was one reason the carrier's
net profit fell 9.9 percent in the three months ending Sept. 30, and
UPS is looking to "right-size our network in 2009."

"Expectations are that the next few quarters will be challenging," UPS
CEO Scott Davis told investment analysts after a sharp retrenchment
in the company's earnings in the quarter.

"Industrial production was negative in the third quarter and is now
expected to be negative for the year. As we have said many times, industrial
production is one of the best barometers for our U.S. domestic business."


That domestic business turned decidedly negative in the weeks leading
up to the peak shipping season.

Average daily domestic package volume was down 3.4 percent compared
to the same quarter last year, including a 2.8 percent decline in UPS's
core ground parcel business. But the overnight air business was far
worse, falling to a little more than 1.1 million packages a night, the
worst figure for the backbone of the carrier's domestic air network
in any quarter since 2002. The decline in shipping demand has been accelerating,
actually slowing from the second quarter to the third, and said UPS
Chief Financial Officer Kurt Kuehn said the company saw "precipitous
declines" in overnight traffic in September, just at the point in the
quarter when business normally picks up steam.

The drop in the premium service left domestic margins down 2.1 percentage
points, to 14.2 percent, and sliced the overall operating profit 4.4
percent, to $1.6 billion. Even international business, the major growth
driver in recent years, saw the operating profit slide 9.8 percent,
leaving the supply chain and freight segment to provide the only bright
spot with a $129 million operating profit that was better than double
what the logistics and LTL business reported last year.

UPS is responding by slashing costs to meet the business demand.

The company is cutting $200 million in capital spending for 2009, reducing
its operating hours for trucks out on delivery 3.4 percent in the third
quarter, cutting miles driven on the road by 3 percent and scaling back
hours in the air for aircraft as part of a cost-cutting effort around
the world.
"We're working hard to right-size our network for 2009," said Kuehn.


At the same time, there is a large effort to take advantage of the various
pieces of the company to keep business and handle international goods
more cost-effectively as shippers trade down in services.

"This deep integration of our freight portfolio with express freight
and small package is allowing us to build a load plan for every major
lane and be able to take advantage of our fixed capacity freight when
we have excess (capacity)," Kuehn said.

Despite the downturn in demand, the company recently announced aggressive
prices, including an effective 4.9 percent for air and 5.9 percent for
ground and LTL services, although Kuehn sounded realistic about UPS's
ability to retain all of the increases.

"Costs are up, and that's why we put in a solid rate increase for next
year," Kuehn said, "and certainly we intend to negotiate and keep the
majority of that."

get your resume updated.........

Been around a while and whenever I see "right-size" something, I see cutbacks. When cutbacks happen, other things seem to fall into place. I do hope for the best, but I am planning for the worse. :(

At least ALPA and the Ohio lawmakers were able to get the DHL/UPS deal squashed or at least pushed back so long that DHL had no choice but to pull out of the USA entirely. Great work! Now there will be many more job losses on both sides, but at least everybody is miserable rather than just some.

Once again, nice work Ohio and ALPA. Looks like you screwed many more thousands.

It's a shame because it seems that the DHL/UPS deal would have allowed DHL to be a viable entity, and it would have preserved many jobs, including the bottom UPS pilots.

Ned, I don't blame those guys. They were doing what I would hope the IPA would do for us if we were in the same situation. Not a good time to be looking for a job, so fight hard as hell for the one you have.

Yes chicken little the sky is falling....I just checked!!

I hear Obama has a plan in place, if anyone gets laid off that they will continue to receive their regular salary during their time of furlough:)

Might this just be part of the original plan to draw down the DC-8? Has the union responded in any way to these statements?

"Denial" it's not just a river in Egypt! :rolleyes:

Not an alarmist is all. Do you have a letter yet? Even if you did, what would you do? NOTHING! Just funny to watch people spool like Frontseat and Biggs......:)

I hear Wal-Mart is hiring.