By now everyone has read the numerous articles about UPS’ record fourth quarter and impressive 2020 earnings. Here are my two big thoughts:
- It’s all about the bottom line – Goodbye to unprofitable parts of the business.
After years of acquisitions and operational investments, it’s taken a while for the company to really turn its eye to the numbers and do something. It’s finally doing it and it’s going to be a sting as the company moves forward.
UPS Freight is the first to go. UPS never could figure out this expensive acquisition which is a shame. It could have been something much more but after 15 years or so, time to throw in the towel and sell it off. I agree with Ms. Tome, this segment will be better off with TFI. Here’s hoping UPS Freight shines under TFI.
What’s next to go? Perhaps most of the logistics services group and leaving a scaled-down version focused on e-commerce fulfillment, returns, and healthcare services. Freight forwarding maybe, but doubtful. Who wants to buy a freight forwarding group in today’s environment? UPS Capital? That would be interesting. Will we eventually see the dismantling of UPS SCS?
- It’s all about the bottom line – Customers
“We are very pleased with the relationships that we have with our good customers.” – Carol Tome – This says it all in my opinion. Good customers in my mind are profitable ones. If you’re a customer that is not profitable for UPS, expect to be dropped by them or accept higher shipping rates and surcharges.
Speaking of higher rates and surcharges… Yes, these will continue because shippers need to pay for the value that UPS provides – according to UPS.
As I read about shippers’ complaints during the holiday season and throughout last year on social media, I realized that UPS (and FedEx for that matter) firmly controls the relationship, telling the shipper how much it can pick up on a weekly basis and when it can pick up versus the other way around. Yes, last year was an extraordinary year but it’s set a precedent and a dangerous one. As e-commerce grows as a percentage of total retail, the last mile becomes even more important to shippers. UPS and FedEx know this and they’re taking advantage of it because they can. UPS and FedEx face few nationwide competitors. Crowd-sourced delivery services, regional small parcel carriers, local couriers, and start-ups are nipping at their toes and when one truly viable nationwide delivery service is available, customers will abandon UPS and FedEx. Customers have long memories and many still hold grudges against UPS for the 1997 strike. But, another thought here, as inventory replenishment becomes more frequent and the need to have it closer to shippers’ customers perhaps one no longer really needs a nationwide delivery service. In that case, shippers need to weigh their options.
And why does everyone love small and medium-size businesses? Because they profit from them. These businesses, the backbone of our economy, typically have less volume than larger shippers which means fewer, if any discounts that are usually given to larger shippers.
UPS is a public company and answers to its shareholders. It is a highly respected company and one that has long needed to review its business offerings like it’s doing right now. Decisions that will be made as a result will sting for individual UPS employees as well as for customers. But, to survive in this quickly changing environment, it needs to be done. I left the company in 2011 and it amazes me the changes the company has made so far. It will be interesting to see what the company evolves into in the next couple of years or so.