Delivery giant is accelerating spending on facilities and planes as volume increases
United Parcel Service Inc. plans to spend more on bigger package-handling facilities, planes and other capacity upgrades next year, efforts to keep up with an e-commerce boom that shows no sign of slowing.
The Atlanta-based delivery giant on Thursday said it would add 5 million square feet of capacity in 2018, five times what it added this year, including new fulfillment and sorting centers, larger planes and expansion of Saturday delivery to more markets. UPS expects its spending on such initiatives to be 8% of its 2017 revenue, more than the 6% to 7% of revenue that it had forecast for the coming years.
“We are investing in order to build our network, not just for the next year or two, but for the next generation,” UPS Chief Financial Officer Richard Peretz said on a call with analysts. “If we can move a little faster, it's always going to be the best thing we can do.”
In an interview, Chief Executive David Abney said that the long-term capital expenditure levels aren't changing but that the company had to speed up the spending because of expected volume increases.
“That can cause the numbers to change from one year to the next, but it doesn't cause the overall capex to change over time,” he said.
As more people shop online, UPS along with FedEx Corp. and the U.S. Postal Service have made investments to accommodate the number of packages moving through their networks. But investors have grown concerned that the spending doesn't seem to be abating.
UPS reported a slight decline in its third-quarter earnings, as higher costs from expanding Saturday delivery and recent natural disasters weighed on its U.S. business. Profit fell slightly to $1.26 billion, or $1.45 a share, compared with the year-earlier period.
Revenue rose 7% to $15.98 billion, with the average revenue per shipment, excluding currency translation, up 2.8%. UPS shares rose 0.7% to $119.33 Thursday.
Delivery companies are raising prices to recoup the network investments they are making. On Wednesday, UPS said it would increase rates 4.9% starting in late December and it lowered the threshold for oversize package fees, so that a wider range of items would be subject to an extra surcharge.
UPS has previously announced plans to tack on extra fees for most packages shipped during the busiest weeks of the holiday season, which it is implementing for the first time this year. UPS expects to spread the load more evenly during the season, aiming to top 30 million packages delivered on 17 of the 21 delivery days between Thanksgiving and New Year's Eve, up from 11 last year.
Overall, UPS expects to make 750 million deliveries during that period, up 5.6% from last year.
—Allison Prang contributed to this article.
BY PAUL ZIOBRO