United Parcel Service, Inc. (UPS)

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UNITED PARCEL SERVICE, INC. (UPS)

With sales of nearly $30 billion, profits of almost $3 billion, and roughly 360,000 employees, United Parcel Service (UPS) is the largest package shipper in the world. Since the early 1990s, the firm has spent roughly $1 billion per year on information technology. Considered the most technologically savvy of the world's largest shipping firms, UPS uses things like UPSnet, with more than 500,000 miles of communications lines, as well as a satellite that tracks hundreds of thousands of packages each day and connects roughly 1,300 UPS distribution plants in 46 different nations. In addition, the firm's expertise in logistics allows it do things like oversee the transport and delivery of 4.5 million vehicles to 6,000 North American automobile dealers each year; in 2000, the process cut delivery time by nearly one-quarter and reduced inventory, which saved Ford roughly $240 million. With a fleet of 152,000 delivery trucks, the firm handled about 70 percent of all U.S. ground shipping in 2001, as well 55 percent of e-commerce-related shipping worldwide.

EARLY HISTORY

Since most individuals did not own telephones in the early 1900s, telegraph messages were carried to homes by hand. In 1907, this fact prompted Jim Casey to establish a bicycle delivery service known as American Messenger Co. in Seattle, Washington, to deliver both telegraph messages and lunches. Six years later, Casey agreed to join forces with a rival business, Merchants Parcel Delivery, and he began focusing on delivering packages for retailers. The newly merged firm, which used the Merchants Parcel name, bought a Ford Model T to speed deliveries and broaden its range. By then, the U.S. Postal Service had started to deliver packages as well, creating increased competition for delivery services like Merchants Parcel. In 1918, three department stores in Seattle contracted Merchants Parcel to make deliveries to their customers on the same day they made their purchases, and the little company employed more than twenty delivery workers. Service to department stores accounted for the bulk of the firm's revenues over the next three decades. During this time, Merchants Parcel developed its consolidated delivery strategy, which called for organizing deliveries so that packages going to one area were all given to the same delivery person.

Moving outside of the Seattle area for the first time, Merchants Parcel acquired Oakland, California-based Motor Parcel Delivery in 1919. To better reflect its more diverse holdings, the firm then changed its named to United Parcel Service (UPS). The word "United" represented the firm's consolidated delivery strategy, which had allowed it to increase efficiency and cut costs. In the early 1920s, UPS began to offer parcel pickup and delivery services to any business in its service area for a flat fee. Expansion into Los Angeles, California—then the fastest growing city in the U.S.—took place in 1922. Three years later, UPS extended its reach to the Eastern Seaboard by launching service in New York City; Newark, New Jersey; and Greenwich, Connecticut. The firm diversified into air delivery services in 1929 via its new United Air Express division, which had convinced airlines to allow UPS packages on passenger planes. However, the air services were cancelled just a short while later due to the economic problems that led to the Great Depression.

Revenues continued to decline after the Depression ended as people purchased automobiles and began to pick up their own packages. In the early 1950s, UPS launched its delivery services in San Francisco and Chicago, and expanded its reach in New York. The firm also relaunched its air service as Blue Label air, completing air deliveries in two days or less. Realizing that the retail delivery market was shrinking, UPS gained permission to act as a "common carrier," an entity that could deliver packages for individuals, as well as businesses. The restrictions placed on both interstate and intrastate deliveries created another hurdle for UPS as the firm was forced to seek permission from each state government to deliver packages within each state, as well as across state lines.

Jim Casey retired in 1962; he was succeeded as CEO by George D. Smith. By the end of the decade, UPS was operating in 31 U.S. states, and sales had reached nearly $550 million. More than 22,000 drivers worked for the firm. The Blue Label air service was expanded in the early 1970s to cover Washington, Oregon, California, and 28 states in the eastern U.S. Ground service in Germany began in 1976, marking the firm's first foray into Europe. To cuts costs, UPS began to use part-time employees to replace full-time package handlers. As a result, 17,000 workers went on strike. Although the strike was resolved that same year, relations between management and employees remained strained. By 1978, the Blue Label air service was offered in all 50 U.S. states.

The deregulation of the U.S. airline industry fueled the firm's growth in the early 1980s as UPS began purchasing planes of its own. For example, UPS paid $28 million for nine used 727 aircraft in 1981. Profits grew to roughly $190 million on sales of $4 billion that year as UPS shipped 1.5 billion packages. The following year, UPS launched its overnight air delivery service, undercutting the rates of rival Federal Express by roughly 50 percent. With 62,000 UPS trucks in operation, sales grew to $5.2 billion. UPS paid $208 million for an additional 13 cargo jets in 1984. Overnight air services were made available to every address in the 48 contiguous states and Puerto Rico in 1985, and International services were launched between a few states in the northeastern U.S. and six European countries. Sales exceeded $10 billion for the first time in 1987. Compared to the 57 percent share of the overnight package market held by Federal Express, UPS held only 15 percent. To strengthen its position against Federal Express, UPS spent $1.8 billion for 110 additional aircraft.

EARLY INFORMATION TECHNOLOGY EFFORTS

In 1986, to compete with technology developed by Federal Express, UPS launched efforts to automate door-to-door package tracking. The new technology took five years to put in place and cost roughly $1.5 billion. Throughout the late 1980s, ground shipping operations at UPS grew nearly 8 percent each year, and air shipping sales increased at an even higher rate. By 1988, sales had jumped to $11 billion; more than 2.2 billion packages were shipped that year. International sales accounted for 6 percent of annual revenues in 1989, compared to 2 percent the previous year; this growth in international activity stemmed from the addition of several countries to UPS shipping routes. The firm's tracking technology proved increasingly valuable as its reach extended across the globe.

UPS paid $11.3 million for a 9.5 percent stake in rival Mailboxes, Etc. in 1990. Service in Eastern Europe was broadened to include cities in Poland, Czechoslovakia, Hungary, Yugoslavia, Rumania, and the USSR. The firm ventured into the Japanese package delivery and air freight markets for the first time via a joint venture with Yamato Transport. Despite international losses of $200 million, total revenues reached $13.6 billion. By 1991, the firm had increased its share of the overnight delivery market to 30 percent. The following year, UPS added to its international holdings with the purchase of Beemsterboer, a Dutch package delivery company, and Star Air Parcel Service an Austrian package carrier. Next-day air services were offered to nearly all addresses in the ten provinces of Canada. In 1994, UPS established UPS logistics to offer logistics management services to businesses; this unit would prove to be a cornerstone in the e-commerce efforts undertaken by UPS in the late 1990s. The firm made its largest purchase to date in 1995 when it bought SonicAir in an effort to move into the same-day delivery market.

MOVE TO THE INTERNET

UPS began allowing clients to track their packages on the Internet in 1995. After Federal Express announced its intent to retreat from the European market, UPS revealed its plans to invest $1.1 billion in its European operations over the next five years. J.C. Penney Co. awarded UPS a $1 billion contract to handle the delivery of its smaller products. The following year, Gateway 2000 hired UPS to ship more than half of its computer equipment; the contract was valued at $350 million. Although a highly publicized strike that year cost the firm roughly $200 million in 1997, sales exceeded $22 billion that year.

In 1998, the firm began working with online retailers to place UPS package shipment data on their Web sites so that shoppers could avoid the extra step of securing a tracking number from the retailer and then logging onto the UPS Web site. Also, UPS Capital was established to create new methods of securing payment, including electronic funds transfer, for delivered goods. UPS shipped more than 50 percent of all online holiday purchases that year.

On November 10, 1999, UPS conducted the largest initial public offering in U.S. business history, selling 109 million shares to investors for $5.5 billion. Sales that year grew 9 percent to $27.2 billion as the firm delivered roughly 13 million packages to 200 countries each day. Profits reached $2.3 billion. Also that year, the firm unveiled its Document Exchange Internet site, which allowed users to instantaneously transmit documents; UPS believed that nearly one-third of its documents would be transmitted via Document Exchange within two years. According to a May 2001 article in Business 2.0, the firm's attempts to upgrade its technology throughout the 1990s were extremely worthwhile. "Begun a decade ago as a way of streamlining UPS's internal operations, the company's push into infotech fortuitously prepared it for the Internet age. When the Net came along, all UPS had to do was plug itself in." For example, the firm's expertise in logistics, as well as its information-technology savvy, allowed it to offer services well beyond simple delivery to Internet upstart Nike.com. UPS began stocking Nike shoes and athletic gear at its massive warehouse in Louisville, Kentucky, from where it shipped Nike.com orders. In addition, the firm's call center in San Antonio, Texas, began taking Nike.com customer service calls. Along with faster order fulfillment than it could have offered by itself, Nike.com also reduced its overhead expenses by allowing UPS to handle its logistics.

UPS created eVentures in February of 2000 to focus on various e-commerce initiatives, such as allowing clients to track all of the packages they are receiving, as well as those they are shipping, and the development of Web-based financial services by UPS Capital. Accordingly, UPS Capital began working with Princeton eCom and Bottomline Technologies shortly thereafter to create an electronic billing and payment service for Web-based business-to-business transactions. The firm was also determined to increase its electronic supply chain management services for business customers via e-Logistics, a new unit of eVentures. Logistics sales in 2000 surged 58 percent to exceed $1 billion for the first time as UPS began completing work on major projects it had secured from the likes of Ford Motor Co. and National Semiconductor Corp. According to a May 2001 article in BusinessWeek Online, UPS designed and constructed a National Semiconductor warehouse, based in Singapore, that uses "a delivery process that is efficient and automated, almost to the point of magic." Once new products, such as computer chips, are manufactured and sent to the Singapore warehouse, "it is UPS's computers that speed the box of chips to a loading dock, then to truck, to plane, and to truck once again. In just 12 hours, the chips will reach one of National's customers, a PC maker half a world away in Silicon Valley. Throughout the journey, electronic tags embedded in the chips will let the customer track the order with accuracy down to about three feet." Between 1999 and 2001, National Semiconductor estimates that using UPS logistics services cut its shipping and inventory management expenses by roughly 15 percent.

To combat a decline in business resulting from the North American economic downturn, the firm halted all hiring and reduced business travel allowances in 2001. In an effort to increase its logistics operations, UPS purchased Germany's Uni-Data. By 2007, UPS planned to increase its non-shipping business, particularly its logistics, freight forwarding, and e-business services, from seven percent of its revenues to 15 to 20 percent of annual sales.