UNITED PARCEL SERVICE INC

International Package

Revenue

The change in revenue was due to the following:

Revenue was also negatively impacted by having one less operating day in the first quarter of 2024.

Volume

Average daily volume for both export and domestic products decreased in the quarter. Business-to-consumer volume decreased 11.1% and business-to-business volume decreased 3.7%. Challenging economic conditions and geopolitical factors contributed to the volume declines. Volume declines were primarily attributable to SMBs, although volume from large customers also declined, with declines driven by the retail and manufacturing sectors, while the technology sector exhibited moderate volume growth. We expect year-over-year average daily volume to be relatively flat in the second quarter and to improve in the second half of the year, dependent on an improvement in global macroeconomic conditions.

Export volume decreased for the quarter, primarily driven by declines on intra-Europe trade lanes. These declines were partially offset by increases on the Americas to U.S. trade lanes, as manufacturing and distribution moves closer to the U.S. consumer market. We also experienced volume improvements on the China to U.S. trade lane during the quarter. The intra-Europe volume decline was primarily due to lower consumer spending as a result of economic conditions.

Our premium products experienced volume declines of 9.6% for the quarter, primarily in our Worldwide and Transborder Express Saver products. These declines resulted from continuing shifts in customer product preferences. Volume in our non-premium products decreased 1.6% for the quarter, driven by declines in our Transborder Standard product, primarily within Europe. The declines in both our premium and non-premium products were due to the macroeconomic conditions described above.

Domestic volume declined in the quarter, with the largest declines in Germany, Canada and the United Kingdom as challenging economic conditions in those countries reduced consumer spending.

Revenue Per Piece

In December 2023, we implemented an average 5.9% net increase in base and accessorial rates for international shipments originating in the United States. Rate changes for shipments originating outside the U.S. are made throughout the year and vary by geographic market.

Total revenue per piece increased 2.0% for the quarter, primarily due to base rate increases. This was partially offset by declines in fuel and demand-related surcharges, as well as unfavorable currency movements. Excluding the impact of currency, revenue per piece increased 2.5% for the quarter. We anticipate overall revenue per piece growth will be relatively flat in the second quarter and will decline in the second half of the year due to the continued shift to non-premium products.

Export revenue per piece decreased 0.6% for the quarter. The decrease was primarily attributable to changes in product mix due to the shifts in customer preferences. Declines in revenue per piece were mostly offset by base rate increases. Excluding the impact of currency, export revenue per piece remained flat relative to last year.

Domestic revenue per piece increased 5.5% for the quarter, primarily due to the rate increases discussed above. Excluding the impact of currency, domestic revenue per piece increased 6.1% for the quarter.

Fuel Surcharges

The fuel surcharge we apply to international air services originating inside or outside the U.S. is largely indexed to the DOE's Gulf Coast spot price for a gallon of kerosene-type jet fuel. The fuel surcharges for ground services originating outside the U.S. are indexed to fuel prices in the region or country where the shipment originates.

Total international fuel surcharge revenue decreased $59 million for the quarter, due to a decrease in price per gallon and volume declines, partially offset by higher surcharge modifiers. Based on our current commodity market outlook, we expect fuel surcharge revenue will increase in the second quarter.

Operating expenses and adjusted operating expenses decreased for the quarter, primarily due to:

•Reductions in the cost of operating our integrated air and ground network, which decreased $125 million, driven by lower fuel prices and reductions in air charters and aircraft block hours.

•Lower pickup and delivery costs, which decreased $22 million as a result of lower volumes and the impact of cost management initiatives.

On an unadjusted basis, these reductions were partially offset by the impact of year-over-year increases in employee separation costs as we continued to right-size our business.

As a result of the factors described above, operating profit decreased $172 million for the quarter, with operating margin decreasing 280 basis points to 15.4%. Adjusted operating profit decreased $124 million and adjusted operating margin decreased 170 basis points to 16.0%.

Increased geopolitical uncertainty continues to impact volumes in our International Package segment. As previously disclosed, substantially all of our operations in Russia and Belarus have been suspended, and we expect to complete the liquidation of our Small Package and Forwarding and Logistics subsidiaries in these countries by end of 2024. Substantially all of our operations in Ukraine remain indefinitely suspended. These actions have not had, and are not expected to have, a material impact on us.