UPS 2013 Annual Report Download - page 41

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
29
The increase in ground volume in 2012 was driven by our SurePost service offering, which targets low-cost, non-urgent
residential deliveries. Volume for this product grew significantly, and accounted for approximately 40% of the total increase in
ground shipments. Outside of our SurePost service offering, volume for our traditional ground residential services also
experienced an increase in 2012. Overall ground volume growth continues to be driven by business-to-consumer shipping
activity from e-commerce retailers, while our business-to-business ground volume was flat in 2012 compared with 2011.
Rates and Product Mix
2013 compared to 2012
Overall revenue per piece was relatively flat in 2013 compared with 2012, and was impacted by changes in base rates,
customer and product mix, and fuel surcharge rates.
Revenue per piece for our ground and air products was positively impacted by an increase in base rates that took effect on
December 31, 2012. We increased the base rates 6.5% on UPS Next Day Air, UPS 2nd Day Air and UPS 3 Day Select, and
5.9% on UPS Ground, while reducing our fuel surcharge indices. Other pricing changes included an increase in the residential
surcharge, and an increase in the delivery area surcharge on certain residential and commercial services. These rate changes are
customary and occur on an annual basis.
Revenue per piece increased for Next Day Air in 2013, and was positively impacted by the base rate increase and the loss
of some lower-yielding letter volume. Revenue per piece for our deferred products declined, as the impact of the base rate
increase was more than offset by declines in fuel surcharge rates and changes in customer and product mix. Revenue per piece
for our air products was adversely impacted by the relatively stronger growth in our lower-yielding Next Day Air Saver and
deferred products, compared with our premium Next Day Air services, as well as the faster growth in lighter-weight business-
to-consumer shipments. Additionally, revenue per piece was negatively affected by the faster volume growth among our larger
customers, which typically have a lower average yield than our smaller and middle-market customers.
Ground revenue per piece increased in 2013 compared with 2012, primarily due to the base rate increase; however, this
was partially offset by customer and product mix changes, as a greater portion of our overall volume in 2013, relative to 2012,
came from lighter-weight shipments and larger customers. Fuel surcharge rate changes adversely impacted ground revenue per
piece growth in 2013 compared with 2012.
2012 compared to 2011
Overall revenue per piece increased 0.8% in 2012 compared with 2011, and was impacted by changes in base rates,
product mix and fuel surcharge rates, as discussed below.
Revenue per piece for our Next Day Air and deferred products decreased in 2012 compared with 2011, as declines in fuel
surcharge rates and product mix changes more than offset the impact of a base rate increase that took effect in early 2012.
Changes in product mix negatively impacted revenue per piece for our air products, as our lightweight service offerings
accounted for a larger portion of our overall air volume in 2012 compared with 2011, and our Next Day Air Saver volume
continued to grow at a faster rate than our premium Next Day Air services.
Ground revenue per piece increased in 2012 compared with 2011, primarily due to a base rate increase that took effect in
early 2012; however, this was partially offset by product mix changes, as strong volume growth in our lightweight service
offerings resulted in these relatively lower-yielding products accounting for a greater portion of our overall volume in 2012,
compared with 2011.
Revenue per piece for our ground and air products was positively impacted by an increase in base rates that took effect on
January 2, 2012. We increased the base rates 6.9% on UPS Next Day Air, UPS 2nd Day Air and UPS 3 Day Select, and 5.9%
on UPS Ground, while reducing our fuel surcharge indices. Other pricing changes included an increase in the residential
surcharge, and an increase in the delivery area surcharge on certain residential and commercial services. These rate changes are
customary and occur on an annual basis.