When your “track package” notice says “out for delivery,” there’s a good chance it's sitting in a brown United Parcel Service (UPS) truck steered by a brown-uniformed driver. UPS is the world's largest package deliverer, transporting about 20 million packages and documents per business day (5 billion a year) throughout the US and some 220 countries. It deploys a fleet of nearly 120,000 motor vehicles and 580 aircraft for pickups and deliveries. In addition to package delivery, the company offers logistics and freight forwarding through UPS Supply Chain Solutions, and less-than-truckload (LTL) and truckload (TL) freight transportation through UPS Ground Freight.
UPS has three business segments: US Domestic Package. International Package, and Supply Chain & Freight.
Domestic package delivery is the company's largest business segment accounting for more than 60% of sales. International package delivery delivers about 20% of UPS' sales. The company also offers UPS SurePost, an economy residential ground service for customers with non-urgent, lightweight residential shipments. It acts as a contractual residential ground service that partners its UPS Ground network with final delivery often provided by the US Postal Service.
Along with logistics and trucking, the company's Supply Chain & Freight segment, which generates a bit less than a fifth of sales, includes forwarding and logistics services, dedicated contract carriage truckload services, LTL services, and financial services.
UPS operates about 580 aircraft, owned or leased, as well as 119,000 package cars, vans, tractors, and motorcycles.
While UPS serves customers in more than 220 countries, about four-fifths of its revenue is generated in the US. The company, headquartered in Atlanta, Georgia, has more than 2,300 operating facilities. Its US transportation hub, called Worldport, is in Louisville, Kentucky.
Sales and Marketing
UPS delivers packages each business day for 1.5 million shipping customers to 9 million receivers. It targets industries such as health care, government, retail, automotive, industrial manufacturing, and aerospace. No customer accounts for 10% or more of the company’s revenue.
UPS has enjoyed seven years of steady revenue growth, with revenue reaching a record $65.9 billion in 2017, 8% higher than 2016. The year’s growth was fueled by increases in all segments: domestic, 6% higher, international, up 8%, and supply chain and freight package with a 15% increase. Volume was higher across all UPS products driven by greater overall retail sales, including the increasing percentage of ecommerce transactions. Business-to-consumer shipments accounted for more than 50% of US Domestic Package volume. Business-to-business shipment volume declined as companies conduct more business electronically. The company raised shipping rates in 2017, including a surcharge for packages sent in the lead-up to Christmas. The company also had higher costs from starting Saturday service.
Profit leaped 44% to $4.9 billion in 2017 from 2016, from higher operating profit across the company’s business lines.
UPS had capital expenditures of about $5.2 billion in 2017 as it built up facilities, up from $2.9 billion in 2016. Cash on hand was about $3.3 billion in 2017 and $3.5 billion the year before. UPS had negative free cash flow of $3.7 billion in 2017 compared to free cash flow of $3.5 billion in 2016.
UPS' extensive global reach is a selling point for its supply chain management offerings, which are tailored to customers in industries such as consumer goods and retail, health care, and technology. The company sees a growing trend in businesses outsourcing supply chain management, viewing it as a strategic advantage to have effective management of their supply chains.
Package delivery revenue is increasing overseas, where UPS continues to expand through infrastructure investments and acquisitions. The company has completed a $200 million, 70% expansion of its European air hub in Cologne, Germany.
In the US, the company is expanding regional facilities in the Indianapolis, Phoenix, Salt Lake City, and Dallas areas to handle increasing traffic. It also has added a regional facility in Atlanta. Inside its facilities, UPS is expanding automated capacity, increasing efficiency, and adding network flexibilities.
UPS created its Advanced Technology Group (ATG) oversee research, testing, development, and application of new technologies. Through the group, UPS collaborates with technology companies and academic institutions to develop digital, robotic, and machine technologies to improve customer service, increase efficiency, and reduce the physical stress of some UPS jobs.
UPS’ performance depends on the general economic climate and consumer activity, especially the trend toward online commerce. Should the economy weaken or consumer preference for online transactions wane, the demand for UPS’ services would decline.
For now business is booming and so is competition. UPS faces carriers such as Fedex and XPO Logistics, which also are investing to expand and improve their operations. Amazon.com is leading retailers in exploring how to handle delivery on their own. What’s more, smaller companies are popping up to make last mile deliveries.
Mergers and Acquisitions
Over the years, UPS has enhanced its operations through acquisitions.
In 2017 UPS acquired Sandler & Travis Trade Advisory Service, a provider of global trade management services. Sandler & Travis operations were combined with UPS' Trade Management Services group to improve customers’ trade investments.
UPS expanded its international operations with the 2017 acquisition of Nightline Logistics in Ireland. The deal complemented UPS offerings and increased delivery density.
In early 2017, it obtained UK-based Freightex, an asset-light provider of truckload, less-than-truckload, specialized, and refrigerated over-the-road services. The acquisition established UPS’ presence in the growing UK and European third-party logistics 3PL over-the-road brokerage transportation market
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