newsworthy
20 DC VELOCITY JULY 2014 www.dcvelocity.com
Satchel Paige, the legendary baseball pitcher, used to warn,
“Don’t look back. Something might be gaining on you.” In
tapping David L. Abney to be the 11th CEO in its 107-year
history, UPS Inc. could be taking a page from the old fire-baller’s quote book.
By choosing Abney, currently its chief operating officer,
UPS signals that it plans to refresh the U.S. ground parcel
network that has largely been functioning on operational
autopilot, and that Abney is the executive best suited to
keep UPS ahead in a market it has controlled for more than
a century. Abney starts his new assignment Sept. 1.
UPS’s core business is hardly struggling. The U.S. ground
parcel segment accounted for more than 40 percent of the
company’s $55 billion in revenue in 2013. Revenue last
year increased by 5 percent year over year. Average daily
volumes rose 4. 1 percent over 2012 totals, while yields
increased by 0.9 percent.
But there haven’t been any major improvements to the
company’s U.S. physical infrastructure for some time.
Perhaps that’s why UPS allocated more than 20 percent of
its $2.5 billion capital expense budget for 2014 to expand
capacity and modernize older facilities.
The issue for UPS is how to respond to factors beyond
its control. Its chief rival, FedEx Corp., has been expanding
its ground parcel network. In 2012, FedEx said it would
expand the ground unit’s capacity so it could handle 45
percent more shipments within five years.
Mark S. Schoeman, president of The Colography Group
Inc., a research and consulting firm, said FedEx’s ground
delivery transit times have improved dramatically.
Schoeman produced a chart comparing transit
times from Chicago, San Francisco, Dallas, and
Washington, D.C., to 17 different markets. The
lengths of haul were divided into six segments,
from less than 150 miles to more than 1,800 miles.
Of the 68 city-pair combinations, FedEx was faster
in 18 while UPS was faster in seven, according to
the data.
In addition, the world that UPS delivers in
has changed rapidly and profoundly. The business-to-business (B2B) segment, which dominated the U.S. ground parcel segment for decades, has
flat-lined. By contrast, the business-to-consumer
(B2C) market, with different ordering, packaging,
and delivery characteristics, has exploded.
In the B2C arena, UPS faces competition
not only from FedEx but also from the U.S.
Postal Service and from massive e-tailers like
Amazon.com.
UPS has the resources to confront the chal-
lenges it faces. Besides the network capacity and
facility improvements, it is working to enhance its
forecasting methods. UPS has acknowledged that its plan-
ning tools need updating, especially after the 2013 holiday
mess, when an unforeseen blizzard of last-minute deliveries
overwhelmed its systems and led to late deliveries of mil-
lions of packages.
UPS has expedited the rollout of its On-Road Integrated
Optimization and Navigation (ORION) software, which
evaluates more than 200,000 ways to run a single route and
directs drivers to the most efficient delivery option. On
January 30, Abney (whom UPS did not make available for
an interview for this story) told analysts that the technology
would be deployed on 45 percent of its 55,000 U.S. routes by
year’s end. It will be deployed throughout the U.S. by 2017.
These investments are unlikely to pressure UPS’s finances; it generated $1.9 billion in free cash flow during the first
quarter of 2014 alone.
Abney’s first task as CEO will be to manage the upcoming peak season. He began working on that task back in
January, when UPS issued a letter to key customers apologizing for the holiday delivery problems, explaining why it
happened, and assuring them there would be no repeat. The
letter, according to industry sources, outlined four steps
that UPS would take to avoid a similar scenario: Increased
collaboration with “high-impact” customers to refine predictive forecasting models; beefing up its network capacity;
providing more timely and accurate shipment visibility;
and doing a better job of communicating with shippers and
consignees.
—M.S.
UPS taps Abney as CEO, moves to shake up U.S. network
Commercial real estate services firm Cushman & Wakefield has
completed a 180,000-square-foot industrial lease with third-party logistics provider Allen Distribution in New Kingstown, Pa. It
has also signed three leases at the TA Associates Realty-owned
Territorial Business Campus in Bolingbrook, Ill. Multi-Plastics Inc.
leased 60,367 square feet; Eastland Food Corp. leased 28,934
square feet; and LMI Solutions, a manufacturer and distributor of toner cartridges and imaging products, leased 42,680
square feet. All three new tenants are utilizing the space for
distribution and light manufacturing. … Contract logistics and
freight management provider CEVA Logistics is expanding its
aerospace industry operations at Fort Worth Alliance Airport in
Texas. The new CEVA facility has 100,000 square feet of warehouse space and is adjacent to the Alliance Airport runway. …
Cubic Designs Inc., a manufacturer of mezzanine systems, has
broken ground on a new 32,000-square-foot expansion project
at its Waupaca, Wis., manufacturing facility, increasing the size
of that plant to a total of 106,000 square feet.
ground breakers
