ital needed to make acquisitions supporting its global
expansion. He added that going public had made UPS
“more aggressive, quicker to make tough decisions, leaner,
and more competitive.”
Since it went public, UPS has made 40 acquisitions totaling an estimated $2 billion. The goal of these transactions
has been two-fold: to create an unparalleled worldwide
delivery network, and to give customers a one-stop shop of
shipping, logistics, and financial service solutions underpinned by advanced information technology.
“When we look at the world, we believe we’ve won the first
race, which is building out our global infrastructure,” says
UPS spokesman Norman Black. Black notes that UPS’s chief
rivals, FedEx Corp. and DHL Express, have holes in their
respective networks, with FedEx being a weak player in
Europe and DHL recently withdrawing from the domestic
U.S. market. UPS has a competitive edge because it is a major
presence in markets where its competitors are not, Black says.
Once UPS completes work on its intra-China air hub in
Shenzhen and an intercontinental air hub in Shanghai, it
will essentially have “finished out” its global system, according to Black.
The acquisitions were also designed to support a strategy
that would “enable global commerce” by integrating the
movement of goods, information, and capital into a seamless flow. UPS believed that if customers leveraged its logistics, information, and financial services to expand their
business, they would do more shipping, thus feeding the
company’s highly profitable small-package operation.
While that strategy was slow to yield results, the plan now
seems to be paying off. Business generated by UPS’s Supply
Chain Solutions unit provides it with about $2 billion in
annual small-package revenue, according to a 2008 study by
consulting firm Armstrong & Associates.
The strategy has also enabled UPS to diversify its revenue
streams and lessen its dependence on its U.S. ground parcel
business. In 2000, its first full post-IPO operating year, UPS
generated 52 percent of total revenue from its U.S. ground parcel traffic and only 5. 4 percent from its domestic non-package
business, according to the Colography Group Inc., an Atlanta
research and consulting firm that has tracked UPS for more
than 25 years. By the end of 2008, revenue from UPS’s U.S.
non-package operations was more than three times that, while
its parcel business generated only 41. 6 percent of the company’s total revenue, according to Colography Group data.
Still, the performance of its non-package operations has
been a concern for investors. Profit margins for supply chain
revenue have remained in the mid-single digits, in contrast to
the healthier 15-percent or so margins generated by small-package revenues. Black says the company never expected
margins from supply chain services to match those from the
small-package operation. “We believe we can get (supply
chain margins) to 7 percent and grow it from there,” he says.
accolades
Long view
UPS, like other transport logistics companies, has been
hammered by the recession. In the third quarter of 2009,
revenues and operating profits were off 14. 9 and 43.0 percent, respectively, from 2008 levels. Yet the company’s long-held reputation for fiscal prudence has helped cushion the
blows. At the end of June, it had $3.3 billion in cash and
marketable securities, and $10.9 billion in debt, most of it
in long-term durations, levels considered reasonable for a
company whose sales are about five times that. In 2008,
UPS’s revenues hit a record $51.5 billion; it will be hard-pressed to exceed that mark in 2009.
What makes UPS a formidable competitor is less its sheer
size than its capacity to shake up the landscape even after
102 years in business. In early October, it
launched an initiative enabling shippers, for a
nominal charge, to calculate and offset the carbon
footprint of their shipments.
A few days earlier, in a direct attack on the traditional direct-mail industry, the company
announced it was testing a service in which drivers deliver small boxes filled with up to 12 premium offers and samples to select consumers.
Retailers that have signed up for the pilot program include Bed Bath & Beyond, Zappos.com,
and the Men’s Wearhouse.
Black says that UPS continues to take the long
view toward its business despite short-term market setbacks. That discipline, he says, positions the
company well for the day when the global economy gets back on its feet. “The next five to 10 years
is going to be a period of tremendous growth,” he
predicts.
—Mark Solomon
; A truckload of recognition. Kane Is Able Inc. has received Wal-Mart’s 2008 Sam’s Carrier of the Year award in recognition of its
dedication to customer service, operational excellence, and ability to
offer creative solutions. This is the second time Kane has received
the Carrier of the Year award.
; Green plant. Toyota Industrial Equipment
Mfg. Inc. (TIEM), the Columbus, Ind., manufacturing plant for Toyota lift trucks, has received
the Indiana Governor’s Award for Environmental Excellence. The honor was bestowed on Toyota for its leadership
in identifying opportunities to reduce energy consumption, improve
performance, and minimize costs. TIEM, a zero-landfill facility, is
responsible for manufacturing the majority of Toyota’s lift trucks sold
in the United States.
