United Parcel Service
Annual Report 2009
Shipping Methods
By understanding our customers’ needs and challenges, we help you do more while saving you time and money. The UPS Store locations offer consumers and small businesses a wide range of products and services in one convenient location. Our range of products and services includes: packaging, shipping, document services, mailbox and postal services, moving supplies and additional products and services. Standard Delivery: We may use UPS Ground service or US Post Office First Class Mail and Priority Mail service. For light weight and low value items, US Post Office Service (USPS) is used. For heavy weight or high value items, UPS ground service is used. Standard Delivery may take 5-7 days or faster. UPS Ground Service: Available for shipping to the 48 contiguous states. Scheduled delivery of your order will be 1 to 6 business days. Please see below map for estimated time (quoted in business days). UPS does not deliver on weekends or holidays. Following picture shows estimated delivery time.
Priority Mail: Although Priority Mail is faster than UPS ground service for shipping to most areas, it does not provide very good online tracking and shipping charge will be very high for heavy weight items. So we only recommended it for light weight and low value items. UPS 3 Day Selection: Available for shipping to the 48 contiguous states. Scheduled delivery of your order will be three business days from the time it leaves our warehouse. UPS 2nd Day Air: Scheduled delivery of your order will be two business days from the time it leaves our warehouse. UPS Next Day Air: Scheduled delivery of your order will be one business day from the time it leaves our warehouse.
Dear, Shareholders
UPS has managed through 21 recessions and one depression in our 102-year history. We applied the lessons learned in our past to guide the business through the recent economic turmoil. And we took the necessary steps to manage the business well, while focusing on the long-term health of our company. UPS implemented unprecedented and comprehensive cost management initiatives in 2009. These initiatives included network changes as well as organizational and structural realignments intended to make UPS a more efficient organization. In addition we significantly reduced capital expenditures without hampering development of growth opportunities. UPS achieved cost savings of nearly $1.4 billion, while attaining service levels that were the best in our history. These achievements occurred without reducing our service footprint.
Even with the pressures of a severe recession, UPS maintained its outstanding financial position. In 2009, the company again generated superior free cash flow, producing $4.1 billion.* UPS also held its dividend at 2008 levels, marking 40 years of maintaining or increasing dividend payments, and increased the dividend in the first quarter of 2010. Despite the heightened focus on cost control, there was no question that we would continue to make strategic investments for the long term. In 2009, our investments for growth spanned the globe and included: Expanding Worldport, our largest international air hub, in Louisville, KY, which will enable us to process 416,000 packages per hour when phase two is completed
in 2010, and optimize our network by flying fewer, larger, and more efficient aircraft. Continuing with construction of an international air hub in Shenzhen, China, slated to open in the first quarter of 2010. Acquiring our service agent in Turkey and establishing a joint venture in Dubai, United Arab Emirates, to capitalize on that area’s growing importance as a transportation bridge and sourcing location for Europe and Asia. Opening 365,000 square feet of dedicated facilities in The Netherlands and Puerto Rico to meet the specialized supply chain needs of the healthcare sector. Adding 300 new compressed natural gas vehicles to what is already the country’s largest private fleet of alternative fuel vehicles in the industry. Our affiliation with the international Olympic Games, begun in 1996, has broadened our brand recognition in the global community. In 2009, we were honored and excited to be selected to manage the transportation and logistical operations of the London Olympic Games in 2012. This entails responsibilities similar to those we executed for the Beijing Olympic Games during 2008. In addition to significant investment in global infrastructure and market penetration, UPS also extended its broad portfolio of products and services. Notable new offerings included: Initiation of domestic express pickup and delivery services in 22 additional countries, bringing the total to 55.
Expansion of the early morning delivery territory in the United States to more than 23,000 ZIP Codes. This means UPS delivers early to more businesses than any other carrier. Introduction of door-to-door pickup and delivery for all UPS Freight services between the United States, Canada, and Mexico. Continued management of complex healthcare supply chains, including package transportation services. Adding Merck’s U.S. distribution operation and two facilities to our network in 2009 increased our global healthcare footprint to 25 facilities and 3.5 million square feet.
Operations Review
Global Package Operations Total small package volume declined 2.7 percent in 2009, to 3.8 billion pieces from 3.9 billion in 2008. Not since 1946 has the United States experienced a steeper drop in industrial production, which is the best predictor of our small package business. U.S. volume was down almost 3.9 percent in a difficult pricing environment. As our customers sought to effectively manage their own businesses, they shifted to less expensive UPS shipping services. Additionally, average package weight and fuel surcharge revenue declined significantly. Savings from excellent cost control efforts and declines in fuel cost were not enough to offset the revenue decline these pressures produced. The international package business experienced the same weight and mix trends as were apparent in the United States. However, UPS’s export volume was down only 2.1 percent in contrast to the double-digit market decline. As a result, UPS posted yet another
year of market share gain in the international arena. The business achieved a 14.1 percent operating margin, essentially unchanged from 2008. This is quite an accomplishment considering the economic environment. By the fourth quarter of 2009, worldwide package volumes and characteristics had begun to improve, resulting in operating leverage and yield gains—among our key objectives for 2010.
Supply Chain and Freight
Revenue in the Supply Chain and Freight segment declined over 16.5 percent in 2009, reflecting the economic slowdown. Adjusted operating margin* declined 100 basis points to 4.0 percent, due primarily to the very challenging conditions through the year in the LTL business and, at the end of the year, in freight forwarding. The Logistics business, however, experienced revenue and profit gains due to strength in the healthcare and high-tech sectors. In the first half of the year, Forwarding benefited from small package customer tradedown to less costly service options. However, capacity constraints out of Asia drove up purchased transportation costs in the latter part of the year, which could not be passed on to customers, pressuring operating margins. In an extremely price competitive environment, UPS Freight opted to maintain pricing to the extent possible to ensure payment for the value we provide our customers. As a result, shipments and tonnage declined, and the unit posted a slight loss for the year. Nevertheless, we believe this is the best strategy to preserve the long-term health of our business, while leveraging our small package customer base. UPS Freight did gain market share in 2009.
Outlook for 2010
I’m optimistic about the future. I firmly believe global trade will be a major stimulus that powers economic recovery. And UPS is better positioned than ever to synchronize that trade. While recovery is under way, regaining global economic health will be a slow process. Therefore, we believe 2010 will show gradual improvement over 2009 as the year progresses. For the year we anticipate generating diluted earnings per share within a range of $2.70 and $3.05. This is a 17- to 32-percent gain over 2009 adjusted results. The first quarter will be the most challenging, with momentum building later in the year. Each of our business segments is expected to post revenue, profit, and operating margin improvement. As we entered 2010, we took bold actions to improve how we go to market and interact with our customers by streamlining the U.S. small package structure. The new structure will move marketing resources and decision-making closer to the customer. It also will enable us to reduce cost and generate better returns in our domestic business. Over the last few years, UPS has greatly expanded the breadth and depth of our solutions portfolio. The restructuring will provide the opportunity to better deliver the value these solutions bring to small and medium-sized customers. In the long run, this new approach to reaching our customers may prove to be one of the most significant changes ever made to our domestic business.
Community Impact
We consider our responsibilities to the global community and to the environment as judiciously as we do other facets of our business. In 2009, UPS committed to a multi-year, multi-million-dollar initiative to improve the capabilities of relief organizations that respond to global emergencies. Among them are the
American Red Cross, UNICEF, the World Food Programme, CARE, and the Aidmatrix Foundation. Through this commitment UPS delivered tons of food and relief supplies, as well as logistics expertise, to American Samoa and Haiti in response to natural disasters in 2009 and early 2010. UPS is the environmental leader in the U.S. package delivery industry because of our integrated network, most modern airfleet, and extensive use of the rails. Nonetheless, we have pledged to reduce our airline’s carbon emissions by an additional 20 percent by 2020 for a cumulative total reduction of 42 percent since 1990. UPS received numerous recognitions in 2009 for our efforts to reduce our climate impact, for corporate support of public policy initiatives on climate change, and for comprehensiveness and transparency in reporting.
UPS … Then and Now
Our growth over the past 10 years was not an accident. It was due in large measure to the more than 400,000 UPSers worldwide who use their skills, knowledge, and passion to serve our customers every day. I want to thank all UPSers for their diligent effort and “can do” spirit. I also want to thank our shareowners who have supported UPS through our journey overthe past decade. A year ago, I predicted that some companies would not survive the economic crisis, others would be severely weakened, while a few would be leaner and more focused. I was confident that UPS would be in that last group. We’re seeing proof that UPS is, indeed, that kind of company—focused on what’s necessary to compete effectively. We are looking forward to 2010 and the prospects for improved trade throughout the world.
On November 10, 2009, UPS celebrated its 10th anniversary as a public company. Over those 10 years, we have emerged as a truly global enterprise. In fact, I believe that globally UPS is the best positioned company in our industry. Today we have the most balanced presence in all major areas of the world, and we’re getting stronger. We are building out an already well-established business in Europe; we are developing a first-rate express network in Asia; we are expanding in the Middle East; and our U.S. presence is second to none. In short, UPS has become the premier source for global transportation and logistics solutions. UPS is the only competitor in our industry offering an end-to-end global service portfolio. From package transportation and supply chain management to freight forwarding and less-than-truckload freight shipment … from international trade services and brokerage to retail, mail, and financial capabilities … UPS’s service portfolio is unmatched.
D. Scott Davis Chairman and Chief Executive Officer
2000- 2007
1991- 1999
1981- 1990
Company History Founded in 1907 as a messenger company in the United States, UPS has grown into a $49.7 billion corporation by clearly focusing on the goal of enabling commerce around the globe. Today, UPS is a global company with one of the most recognized and admired brands in the world. We have become the world's largest package delivery company and a leading global provider of specialized transportation and logistics services. Every day, we manage the flow of goods, funds, and information in more than 200 countries and territories worldwide.
1930- 1980
1907- 1929
Stock Price
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