UNITED PARCEL SERVICE INC

Supply Chain Solutions

Revenue

Total revenue in Supply Chain Solutions decreased for the quarter. This was primarily due to declines in our Forwarding business, with both truckload brokerage and freight forwarding revenues decreasing, and declines within certain of our other businesses. These declines were partially offset by revenue growth in our Logistics businesses.

•Revenue in our truckload brokerage business decreased $148 million due to lower volumes and a decline in market rates. These decreases were partially offset by volume increases from SMBs as a result of our revenue quality initiatives.

•International airfreight revenue decreased approximately $53 million due to continued weakness in market demand, impacting both volumes and rates. We expect improvements in market demand and tightening capacity, particularly on Asia export lanes, which are expected to lead to revenue growth in the second half of 2024.

•The remaining reduction in revenue was primarily attributable to our ocean freight forwarding business, driven by a change in product mix that drove growth in volume but at lower rates. We expect revenue to remain challenged in the second quarter as capacity increases are expected to continue to exceed demand.

Within our Logistics businesses, revenue increased $132 million. The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $90 million of the increase, with the remainder driven by growth in clinical trials and pharmaceuticals within our healthcare operations. Revenue in mail services remained relatively flat as rate increases and a favorable shift in product characteristics were offset by a decrease in volume.

Revenue from other businesses within Supply Chain Solutions decreased, driven by a reduction of $69 million from lower volumes under contracts with the USPS. Revenue from transition services provided to the acquirer of UPS Freight declined $34 million as we continue to wind down these arrangements. These reductions were partially offset by higher revenue from our digital businesses due to business growth and the impact of the acquisition of Happy Returns in the fourth quarter of 2023. We expect revenue from our other Supply Chain Solutions businesses will increase during the second half of 2024 as this is where we will report the revenue related to the additional air cargo volume under our recently announced agreement with the USPS.

Total operating expenses and adjusted operating expenses within Supply Chain Solutions decreased for the quarter.

Forwarding operating expenses decreased $229 million, primarily due to a reduction of approximately $196 million in purchased transportation expense as a result of lower market rates across our businesses, and decreased volumes in both the airfreight and truckload brokerage businesses. We expect our operating expenses will increase during the second half of 2024 driven by expected higher volumes.

Logistics operating expenses increased $124 million, driven by the impact of the acquisition of MNX Global Logistics which contributed $88 million of the increase. Expenses in our healthcare operations increased $43 million, primarily due to higher rates for third-party transportation. Operating expenses in mail services were relatively flat. On an unadjusted basis, Logistics operating expenses were also impacted by a charge to write down the value of certain trade names acquired as part of the Bomi Group acquisition.

Expenses in our other Supply Chain Solutions businesses decreased, largely driven by the reduction in transportation costs incurred to fulfill our obligations to the USPS under existing agreements. Costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight also decreased as we continued to wind down these arrangements. These decreases were partially offset by higher operating costs within our digital businesses. On an unadjusted basis, these decreases were offset by the impact of transformation and other costs, including an expense related to a regulatory matter. We expect expenses in our other Supply Chain Solutions businesses will increase during the second half of 2024, as this is where we will report expenses related to the additional air cargo volume under our recently announced agreement with the USPS.

As a result of the factors described above, total operating profit decreased $115 million, with operating margin decreasing 320 basis points to 4.1%. On an adjusted basis, operating profit decreased $32 million with adjusted operating margin decreasing 60 basis points to 7.0%.