UNITED PARCEL SERVICE INC

Supply Chain Solutions

(1) Amount represents the change in currency translation compared to the prior year.

Revenue

Total revenue in Supply Chain Solutions increased for both the third quarter and year-to-date periods, primarily due to growth in Logistics and certain of our other businesses, which more than offset declines in Forwarding, which were driven by reductions attributable to Coyote.

Within our Logistics businesses, revenue increased $120 million for the quarter (up $367 million year to date). The acquisition of MNX Global Logistics in the fourth quarter of 2023 contributed $91 million of the increase for the quarter ($269 million year to date), including revenue related to healthcare customers. Revenue in mail services increased $65 million for the quarter (up $59 million year to date) driven by new customer volume and rate increases in the third quarter. These increases more than offset a decline in our other logistics businesses during the quarter. We expect continued growth from MNX Global Logistics and mail services for the remainder of 2024.

Within our Forwarding businesses:

•International airfreight revenue increased approximately $50 million for the quarter (up $21 million year to date), due primarily to increases in market rates since the first quarter. Volume also grew during the quarter and year-to-date periods, particularly on the Asia export lanes, driven by e-commerce customers. We expect revenue growth to continue for the remainder of the year, with anticipated increases in e-commerce demand driving higher volumes and rates.

•Ocean freight forwarding revenue increased for both the quarter and year to date, driven by an increase in market rates during the second and third quarters resulting from improved market dynamics, more than offsetting lower year-to-date volumes and lower rates during the first quarter. We expect revenue growth to continue for the remainder of the year driven by these higher rates.

•Revenue from Coyote, decreased $152 million for the quarter (down $388 million year to date) due to lower volumes, continued softness in market rates, and completion of the previously announced divestiture on September 16, 2024.

Revenue from other businesses within Supply Chain Solutions increased for both the quarter and year to date.

•Revenue attributable to volume from the USPS increased $111 million for the quarter, driven by increased volumes as we continued to onboard volume related to our April 2024 USPS air cargo agreement. Year to date, revenue attributable to the USPS increased $38 million, attributable to air cargo volume growth in the second and third quarters, which more than offset lower volumes in the first quarter. We expect revenue growth will continue in the fourth quarter, as the air cargo volume under our agreement is now fully onboarded.

•In our digital businesses, revenue increased $45 million for the quarter (up $124 million year to date), driven by volume growth at Roadie and the impact of Happy Returns, which was acquired in the fourth quarter of 2023.

•Revenue from transition services provided to the acquirer of UPS Freight continued to decrease in both the quarter and year-to-date periods as we continue to wind down these arrangements.

Total operating expenses and non-GAAP adjusted operating expenses within Supply Chain Solutions increased for both the third quarter and year-to-date periods for the reasons described below. For additional information on our non-GAAP adjustments, see Supplemental Information - Items Affecting Comparability.

Logistics operating expenses increased $184 million for the quarter (up $481 million year to date) and on a non-GAAP adjusted basis, operating expenses increased $129 million for the quarter (up $398 million year to date). Increases in operating expense were driven primarily by the impact of the acquisition of MNX Global Logistics which contributed $89 million of the increase for the quarter ($264 million year to date). Operating expenses in mail services increased $54 million for the quarter (up $60 million year to date) driven by third quarter volume growth and rate increases. Non-GAAP adjusted operating expense excludes the impact of $56 million for the quarter ($63 million year to date) in expense primarily related to projects within our healthcare operations undertaken as part of our transformation strategy and $41 million in expense also within our healthcare operations during the first quarter of 2024 to write down the value of certain trade names acquired as part of the Bomi Group acquisition.

Forwarding operating expenses decreased $189 million for the quarter (down $484 million year to date) and on a non-GAAP adjusted basis, operating expenses decreased $47 million for the quarter (down $317 million year to date), primarily due to a reduction in purchased transportation expense as a result of lower volumes and market rates in Coyote and the impact from divestiture. Operating expenses in our freight forwarding business increased $106 million for the quarter driven by higher market rates and volumes, in particular on our Asia to U.S. lanes, for both international airfreight and ocean freight. Year-to-date operating expenses in our freight forwarding businesses also increased, as lower market rates in the first half of the year were offset by higher market rates and volumes in the third quarter. We expect our Forwarding operating expenses will decrease in the fourth quarter driven by the impact of the Coyote divestiture, partially offset by continued growth in market rates in our freight forwarding businesses. Non-GAAP adjusted operating expense excludes the impact of $28 million for the quarter ($35 million year to date) in expense related to projects undertaken as part of our transformation strategy and a gain of $156 million related to the divestiture of Coyote recognized during the third quarter.

Expenses in our other Supply Chain Solutions businesses increased $108 million for the quarter (up $185 million year to date) and on a non-GAAP adjusted basis, operating expenses increased $226 million for the quarter (up $258 million year to date), primarily driven by the increase in expense associated with USPS volumes as we continued to onboard the air cargo volume during the third quarter driving additional aircraft block hours and associated ramp up costs. Year to date, these ramp up costs more than offset the first quarter cost decreases of $47 million attributable to decreases in other USPS volumes. Within our digital businesses, operating costs increased for the quarter driven by volume growth and the impact of acquiring Happy Returns in 2023. Costs incurred to procure transportation for, and provide transition services to, the acquirer of UPS Freight continued to decrease in both the quarter and year-to-date periods as we continued to wind down these arrangements. Year-to-date non-GAAP adjusted operating expense excludes the impact of $45 million in expense related to a regulatory matter. For the three and nine months ended September 30, 2023, non-GAAP adjusted operating expense excluded the impact of goodwill impairment charges of $117 and $125 million, respectively.

As discussed above, our non-GAAP adjusted operating expenses exclude the impact of transformation strategy costs which were $84 million for the quarter ($98 million year to date) for Supply Chain Solutions. Transformation strategy costs reflected within Supply Chain Solutions during these periods are related to our Fit to Serve and Transformation 2.0 programs. Within Transformation 2.0, we incurred impairment costs resulting from our business portfolio review and costs related to financial system investments in Forwarding. Within Fit to Serve, we incurred severance costs as we right-size our business.

As a result of the factors described above, total operating profit increased $147 million for the quarter (down $26 million year to date), with operating margin increasing 400 basis points to 8.5% (down 40 basis points to 6.6% year to date). On a non-GAAP adjusted basis, operating profit decreased $58 million for the quarter (down $183 million year to date) with non-GAAP adjusted operating margin decreasing 240 basis points to 6.4% (down 200 basis points to 6.9% year to date). Non-GAAP adjusted operating profit excludes the impact of operating expense adjustments discussed above.