Chief Financial Officer at United Parcel Service
Thanks, Carol and good morning. In my comments today, I will cover four areas, starting with the macro-overview, then our third quarter results. Next, I'll review cash and share owner returns. And lastly, I'll wrap up with some comments on our outlook for the full year.
Let's start with the macro. In the third quarter, the global economy continued it's strong growth despite the dampening effects of COVID-19 and inflation, along with shortages in inventory and labor. Within this backdrop, demand for our services remained high and the pricing environment in the industry was firm. We expect similar dynamics in the fourth quarter. And as we demonstrated in the third, we will continue to execute our strategy and capture profitable growth opportunities in the market. IHS is forecasting fourth quarter global GDP will grow 3.8% and U.S. GDP is expected to grow 4.9% which remain above historic GDP growth rates.
Moving to our third quarter consolidated performance. The progress we've made to improve revenue quality, enhance productivity and allocate capital is driving strong top and bottom-line results. Consolidated revenue increased 9.2% to $23.2 billion. Consolidated operating profit totaled $3 billion, 23.4% higher than last year. All three segments generated record third quarter operating profit and achieved double-digit operating margins in the quarter. Consolidated operating margin expanded to 12.8% which was 150 basis points above last year. And diluted earnings per share was $2.71, up 18.9% from the same period last year.
Now let's take a look at the segments. Our results in U.S. domestic were better than we anticipated. Principally, due to higher than planned for improvements in revenue per piece and productivity gains. As we expected, average daily volume in the U.S. was down 540,000 pieces or 2.7% due to a decline in SurePost of 576,000 packages per day. This decline was partially offset by growth in ground commercial volume. Our results reflect the continued execution of our strategy to win in the most attractive parts of the market. In fact, customer mix continued to be positive as higher-yielding SMB average daily volume, including platforms was up 10.9%. And in the third quarter, SMB has made up 27.4% of U.S. domestic volume compared to 23.6% last year.
Regarding our delivery mix, our commercial business continued to recover and grew 6.8%, representing 42% of our volume in the third quarter, compared to 39% in the third quarter of last year. Nearly all industry sectors grew B2B average daily volume, including retail and high tech. For the quarter, U.S. domestic generated revenue of $14.2 billion up 7.4% driven by a 12% increase in revenue per piece with fuel driving 270 basis points of the revenue per piece growth rate.
Turning to costs, total expense grew 5.8% with fuel driving 180 basis points of the year-over-year expense growth rate. Through our focus on productivity, overall improvements led by our inside sort operations and on-road activities helped offset the market rate adjustments we implemented in certain geographies, as well as the cost of expanding Saturday delivery. And as Carol mentioned, a key measure of UPS productivity is pieces per hour. And in the third quarter, we made improvements in nearly every area of our operations led by preload which improved by 6.5%. Combined, these improvements contributed to a decrease in direct labor hours per day of 5.1%.
In summary, revenue growth was above expense growth which generated positive operating leverage. The U.S. domestic segment delivered $1.4 billion in operating profit, an increase of $281 million or 24.8% compared to last year. And operating margin expanded 140 basis points. Moving to international, the segment continues to generate strong profit growth driven by the execution of our strategy. Due to tough year-over-year comparisons and some supply chain disruptions, growth in average daily volume moderated in the third quarter and was up 1.9%.
B2B average daily volume grew 3.8% on a year-over-year basis and offset a decline in B2C volume which was down 2.3%. On a two-year stack, total average daily volume was up 14%. Total export, average daily volume was up 1.3% on a year-over-year basis. Export growth in Europe and the Americas offset a 4.8% decrease in export average daily volume out of Asia. The decline in Asia was due to difficult comps from a year ago and the implementation of network contingency plans in response to COVID-19 protocols at select airports. Relative to our plan, we had 137 fewer flights out of Asia than we anticipated.
For the quarter, international revenue was up 15.5% to $4.7 billion with strong growth across all regions. Revenue per piece was up 14%, including a 500-basis point benefit from fuel. Revenue quality improved on a year-over-year basis as we continue to utilize surcharges to match demand with available capacity. In the third quarter, international delivered it's fourth consecutive quarter of profits over $1 billion. Operating profit was $1.1 billion, an increase of 14% and operating margin was 23.5%.
Now, looking at supply chain solutions; the segment delivered record third quarter top and bottom-line results as the team executed exceptionally well in a dynamic environment. Revenue increased 8.4% to $4.3 billion with all major business categories contributing to profit growth. Market demand remained elevated with a couple of key profit drivers. In forwarding, capacity constraints and consumer demand in the market drove volume growth in air freight forwarding and strong yields in our ocean freight product which drove top and bottom-line results. And in logistics, revenue and operating profit grew by double digits led by our healthcare portfolio.
In the third quarter, Supply Chain Solutions generated record operating profit of $448 million and the operating margin was an impressive 10.5%. As a reminder, this is our first full quarter without UPS Freight results. Given that we closed the sale on that business on April 30th of this year. Walking through the rest of the income statement, we had $177 million of interest expense. Our other pension income was $285 million. And lastly, our effective tax rate came in at 22.3% which was lower than last year due to favorable changes in jurisdictional tax rates and discrete items.
Now, let's turn to cash in the balance sheet. We are generating strong cash flow from our disciplined focus on capital allocation and growth in net income. So far in 2021, we have generated a record $11.8 billion in cash flow operations and $9.3 billion in free cash flow. And in the first nine months of this year, UPS has distributed $2.6 billion in dividends. In August, we announced a $5 billion share repurchase plan with the intent to repurchase $500 million of shares in 2021 which we completed in the third quarter. We expect to execute the remainder of the program over the next few years.
Now, I will make a few comments regarding the full year outlook. We are continuing to pay close attention to and manage through several external factors, including COVID-19, inflationary pressures and inventory and labor shortages. Despite these challenges, consumer demand is expected to be strong during peak season and in the fourth quarter. Due to our third quarter out-performance combined with the progress we are making with our strategic initiatives and our increased fourth quarter plan, we are raising our full year guidance. On a consolidated basis, we expect full year 2021 revenue growth of around 13.8% year-over-year which takes into account the divestiture of UPS Freight. Additionally, consolidated operating margins should be around 13%.
In U.S. domestic, we anticipate full year 2021 revenue growth of about 12.7% with revenue growing faster than volume. We anticipate the full year 2021 U.S. operating margin will be around 10.5%. As you update your models for the U.S. domestic segment, there are a couple of things to keep in mind as we get into the fourth quarter. First, as usual, enterprise and B2C volume will represent a larger percentage of our total volume due to peak when compared to the rest of the year. And second, we are lapping more than $550 million in peak season surcharges in addition to the early customer pricing actions we implemented last year as a part of our revenue quality initiatives. As a result, we expect a sequential revenue per piece growth rate to moderate in the fourth quarter.
Moving to the international segment; we expect full year revenue growth of around 20.7%, with an operating margin of about 23.9%. And in the Supply Chain Solution segment, we anticipate full year revenue growth of around 10.3% and operating margin of about 10%. Additionally, for the full year in 2021, we expect free cash flow to be around $10.5 billion and return on invested capital will be around 29%. Capital expenditures are now expected to be approximately $4.2 billion. And lastly, our effective tax rate for the full year is expected to be about 22.5%.
As I wrap up, the economic outlook and the effects of our revenue quality and productivity initiatives are putting us well on our way to achieving the high end of our 2023 targets that I shared with you in June. We are executing our strategy under the better, not bigger framework and delivering on our commitments, despite a very dynamic environment. We are laser-focused on improving revenue quality, reducing our cost to serve and remaining disciplined on capital allocation to improve the experience for our customers and our people and the financial performance of our company.
Thank you. And operator, please open the lines.