United Parcel Service, Inc. (UPS) delivers packages and also provides supply chain management solutions on a global scale. UPS covers more than 220 countries and territories with its package delivery services. UPS also maintains a technology platform where customers can control and track their packages, inventories and supply chains.
UPS operates in three market segments:
- S. Domestic Package
- International Package and
- Supply Chain & Freight
- S. Domestic Package Reporting segment
This is a service targeted towards the US market, providing guaranteed ground and air package transportation services. Customers can choose several guaranteed time and day-definite delivery options. This segment also features UPS SurePost, which is a residential ground service that provides a cost-saving delivery mode for customers with non-urgent, lightweight residential shipments.
- International Package Reporting segment
Tailored to the international market, the International Package reporting segment offers shipping of small packages to Europe, Asia, Canada and Latin America, the Indian sub-continent, the Middle East and Africa. In this segment, three guaranteed time-definite express options (Express Plus, Express and Express Saver) are provided. These options cater to urgent, time-definite shipments. Shipments which do not require urgent services are covered by the UPS Worldwide Expedited service. Cross-border ground package delivery is handled by the UPS Transborder Standard delivery services.
- Supply Chain & Freight Reporting segment
UPS operates freight, forwarding and logistics services. As part of this service, several Field Stocking Locations (FSLs) which provide delivery of medical devices to hospitals and care facilities are maintained by the company.
UPS Freight provides full truck-load and long-haul less-than-truckload (LTL) services on a regional basis to all 50 states in the US, Canada, Puerto Rico, Guam, the United States, Virgin Islands and Mexico. Various small package technology offerings for freight are also provided to enable customers to process and track their shipments as well as create electronic bills of lading and reconcile billing. Insurance, financing and payment services are handled by UPS Capital.
What Lies Ahead for UPS Investors?
UPS has benefitted from the explosion in e-commerce services as well as the advent of the smartphones and tablet devices, which have enabled it to diversify its product offering from the traditional expedited delivery services.
The e-commerce industry has grown in recent years, helped by an increase in internet connectivity and deployment of smartphones. Online sales from sites such as Amazon and AliBaba are smashing records yearly. This market is estimated to continue its rapid growth well into the foreseeable future. This boom in e-commerce has boosted industries that are involved in shipping and courier services, of which UPS is an integral part. The holiday seasons are also associated with a larger volume of packages, which should translate into higher revenues for courier companies. Unlike in previous years, UPS was able to handle the heavy increases in volumes, beating out its main rivals such as FedEx which had problems meeting its delivery schedules.
UPS would however need to watch out for the emergence of Amazon into this space in 2016. Amazon has announced plans to lease 20 Boeing 767 transport aircraft and has also purchased many trucks and trailers to aid in ground delivery. Amazon has also launched Amazon Prime Air, its drone delivery service as well as a metro delivery service known as Amazon Flex. UPS has been Amazon’s third-party shipping partner for many years. Entrance of these services from Amazon could hurt UPS in a two-pronged manner: reduced revenues from shipping less of Amazon’s products to consumers, as well as the increased competition the new Amazon shipping services will create.
UPS will therefore have to find a way to cushion the potential financial implications of these developments on its revenues if it is to enjoy the best of 2016.