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MarketScreener Homepage  >  Equities  >  Nyse  >  United Parcel Service    UPS

UNITED PARCEL SERVICE

(UPS)
  Report
Delayed Quote. Delayed Nyse - 12/04 04:10:00 pm
167.25 USD   -0.35%
12/04UNITED PARCEL SERVICE : UPS Korea Fact Sheet
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Commentary: E-Commerce Surge Will Reshape Parcel Carriers' Strategies

10/28/2020 | 05:15am EST

By Alan Amling

The acceleration of business-to-consumer shipments during the Covid-19 pandemic has been a boon to the big, national small-package companies.

The spike in demand that came from a surge in online shopping flooded the United Parcel Service Inc. and FedEx Corp. delivery networks with shipments and allowed both companies to raise their shipping rates. Their stock prices soared after initially dipping as widespread lockdowns began in the early days of the pandemic.

Yet changes in distribution strategies as a response threaten to loosen the carriers' grip on the highly lucrative U.S. package-delivery market, and raise important questions about the business plans at the parcel carriers going forward that could have dramatic implications on how retailers get goods to their customers.

The rapid expansion of business-to-consumer parcel distribution is already driving significant changes to distribution strategies that are aimed at cutting logistics costs and making delivery more responsive to consumer demands. Retailers and a growing field of logistics providers are adding more warehouses close to population centers and spreading more inventory around the country, a shift away from the use of a small number of regional warehouses.

The companies are trading potentially higher inventory and warehousing costs for lower shipping charges to get goods to consumers within a couple of days. When products are stored locally for delivery, the options for delivery expand and competition for those shipments grows. According to New York-based market research group IBISWorld Business, there are 228,000 couriers and local delivery-service businesses in the U.S.

Deliveries to consumers' homes accounted for roughly 70% of U.S. domestic volume for UPS and FedEx in the period after coronavirus-driven lockdowns began, a sharp increase from pre-pandemic levels, according to statements by company executives during earnings conference calls earlier this year.

The package carriers charge based on weight, making these lighter deliveries to individual consumers less profitable than the heavier business-to-business shipments that have driven parcel growth over the last half-century. The companies get a boost from the economies of scale: Delivering 10 packages to a single business location is only marginally more costly than delivering a single package to a residence.

During the first quarter, UPS drivers made 15% more stops on their routes and delivered packages that were 33% lighter.

The rapid growth of same-day and next-day deliveries amid competition between the big retailers also poses a challenge to the package carriers. To ensure that delivery standard and tamp down higher delivery costs, Amazon.com Inc., Walmart Inc. and others are taking greater control of their own distribution operations.

Last year, Amazon.com began shifting the delivery commitment for Prime members from two days to one day, supported by the buildout of over 400 local delivery stations fulfilling last-mile shipments. Walmart has made "fast and free" a linchpin of its Walmart+ offering.

They're hardly alone.

In the first half of 2020, Costco Wholesale Corp. spent $1 billion for Innovel Solutions, a middle- and last-mile carrier. Home Depot Inc. opened a dozen last-mile facilities, with plans for 100 more. Target Corp. is leveraging the use of Shipt, the same-day delivery company it acquired in 2017, and now fulfills about 80% of its e-commerce orders through its 1,900 U.S. stores. Many other retailers are looking at how to turn their stores into fulfillment centers for curbside pickup and delivery.

Local fulfillment changes the game, undercutting the advantages of size and scale the big carriers enjoy in their national networks, raising important strategic questions for the package giants.

The national carriers could choose to invest in changes to their own delivery networks compatible with the multiple trip requirements of on-demand delivery. That would expand their service offerings, but would be no easy undertaking.

Currently, UPS and FedEx have highly efficient route-based systems optimized for two- to five-day delivery of ground shipments. A crowdsourced delivery component would enable the incumbents to compete for local business-to-consumer shipments and could lead to bundling opportunities for their express and trucking businesses.

Still, they could simply choose to effectively stand pat, taking what business they can while leaving the tough economics of last-mile delivery to regional carriers and the retailers who want to invest in the business. UPS and FedEx could then build out services for higher-margin, industrial segments like manufacturing, health care and cross-border shipping that rely on their highly integrated networks.

That would leave a U.S. private package market dominated for two decades by two carriers looking far more fragmented, but perhaps more responsive than ever to the needs of individual consumers.

Alan Amling is a teacher and researcher at the University of Tennessee's Global Supply Chain Institute in the Haslam College of Business. He is a former UPS executive.

(END) Dow Jones Newswires

10-28-20 0614ET

Stocks mentioned in the article
ChangeLast1st jan.
COSTCO WHOLESALE CORPORATION -0.17% 373.43 Delayed Quote.27.05%
FEDEX CORPORATION 0.74% 294.88 Delayed Quote.95.01%
TARGET CORPORATION 0.06% 175.03 Delayed Quote.36.52%
THE HOME DEPOT, INC. -1.55% 263.99 Delayed Quote.20.89%
UNITED PARCEL SERVICE -0.35% 167.25 Delayed Quote.42.88%
WALMART INC. -0.26% 148.91 Delayed Quote.25.30%
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Financials (USD)
Sales 2020 82 512 M - -
Net income 2020 6 516 M - -
Net Debt 2020 17 731 M - -
P/E ratio 2020 22,3x
Yield 2020 2,41%
Capitalization 145 B 145 B -
EV / Sales 2020 1,97x
EV / Sales 2021 1,86x
Nbr of Employees 377 640
Free-Float 82,7%
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Technical analysis trends UNITED PARCEL SERVICE
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 171,32 $
Last Close Price 167,25 $
Spread / Highest target 25,6%
Spread / Average Target 2,43%
Spread / Lowest Target -55,8%
EPS Revisions
Managers
NameTitle
Carol B. Tomé Chief Executive Officer & Director
William R. Johnson Non-Executive Chairman
George Williams President-US Operations & Senior Vice President
Brian Newman Chief Financial Officer, Treasurer & Senior VP
Juan R. Perez Senior VP, Chief Information & Engineering Officer
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