Dive Brief:
- Ahead of its second-quarter earnings release Wednesday morning, UPS announced the launch of several new service extensions in line with recent actions taken by FedEx.
- UPS is launching extended pickup hours for Next-Day Ground Delivery and expanded pickup and delivery service to seven days per week. Later pickups are available immediately via contract. Seven-day service will begin Jan. 1, 2020.
- Additionally, the carrier announced new retail partnerships for package pickup and drop off with CVS, Michael’s and Advance Auto Parts, creating 21,000 access points in the U.S. to the UPS network.
Dive Insight:
UPS had its most profitable quarter ever, according to executives on the company's second-quarter earnings call Wednesday morning. Between the opening of three new automated sortation hubs in the second quarter, and billions in technology transformation proving their worth in efficiency, executives described the current moment as an inflection point for the carrier.
Regarding the new service announcements, CEO David Abney told analysts, "You have to look at all these announcements that we’ve made not as individual projects, but this is a holistic approach to enable small and medium-sized customers to swing above their weight."
One place where smaller shippers have struggled to compete with e-commerce titans is on delivery speed. Though some industry experts contend that not all shippers feel the need to match Amazon's 1-day Prime shipping speed, 30% growth in next-day air for the quarter suggests the pressure is moving quite a few shippers to speed things up.
To support the anticipated strong growth in next-day air, the carrier will add 44 new aircraft by 2022 (beginning in 2017). Chief Transformation Officer Scott Price said on the call that next day air volumes in the second quarter were essentially at peak levels for 2018, demonstrating more than enough demand to justify the new aircraft. Plus, Abney said the "structural shift" toward one-day shipping is pulling market share toward UPS.
And what's lightning-fast service without near-constant delivery? Leaning on USPS, expanding to seven-day pickup and delivery won't be much of a stretch for UPS. The infrastructure for near constant delivery is essentially already in place. Experts told Supply Chain Dive that it's likely customer demand causing 3PLs to pull the trigger and make near-constant delivery official.
Later pickups are also an important part of faster delivery, and UPS' pickup extensions bring it in line with FedEx's announcements earlier this year. FedEx announced seven-day service in May and launched "extra hours" back in December and now Rent-the-Runway and Target are taking advantage.
With both carriers now offering these services, they will be forced to compete more on network and rates and less on the breadth of service going forward.
FedEx also launched a retail partnership with Dollar General in June. Retail partnerships have become essential to parcel carriers as e-commerce grows and with it, demand for reverse logistics. With these new partnerships, UPS has 21,000 Access Point locations in the U.S. and FedEx has 62,000 retail touchpoints nationally.
As both carriers build their retail networks to within minutes and miles of most U.S. consumers, this too may become less of a point of differentiation and more of a given.
