UPS’ No. 1 Opportunity and Challenge in 2021 (Hint: It’s Not Amazon)

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UPS (NYSE: UPS) delivered anther good quarter, but questions remain about its potential to expand profit margins while servicing burgeoning e-commerce growth from Amazon (NASDAQ: AMZN) and other customers. The jury is definitely out on the matter. That said, if I was on that jury, I’d be arguing in UPS’ favor. Here’s why.

The question has been bothering investors in UPS and FedEx for some time. Yes, everybody loves a revenue growth opportunity. However, nobody loves margin pressure, and there’s little doubt that delivering inefficiently packaged business-to-consumer (B2C) deliveries to low density, hard to find, residential addresses is a more costly activity.

The main focus of the matter is the company’s U.S. domestic package segment, responsible for around half of UPS profits in 2020. Margins have declined over the years, and the transportation company has had difficulty significantly improving the segment’s operating profit. All of which comes at a time when the segment’s revenue increased nearly 50% from 2014-2020.

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