Business Model of United Parcel Service

Business Introduction:

United Parcel Service is one of the leading parcel and delivery service providers based in the United States. The company was founded in 1907 in Seattle, Washington. Today, apart from being the world’s largest package delivery company, UPS is also a premium provider of supply chain solutions. The company provides its services throughout the world in 220 countries. In 2019, the company delivered around 21.9 million pieces each day or 5.5 billion packages during the entire year. UPS also operates one of the largest airlines in the world as well as one of the largest fleets of alternative vehicles. It has a broad portfolio of differentiated services that enable the company to provide advanced logistics solutions. 

UPS Business model
UPS Air operations.

Reporting segments of United Parcel Service

The business of United Parcel Service is divided into two major segments that include global small package as well as supply chain and freight. The global small package reporting segment of United Parcel Service is divided into two reporting segments that include the US domestic package and international package. The global small package reporting segment of UPS  provides time-definite delivery services for express letters, documents, small packages, and palletized freight through air and ground services. UPS uses several visibility, billing, and shipping technologies to support global package operations. UPS has established a single global pick up and delivery network to manage all types of services including air, ground, domestic, international, commercial and residential. The company offers same-day pick-up services throughout the week. The global network of UPS has 150,000 entry points from which the customers can tender a package from any convenient location and at a convenient time. Its integrated international network includes several types of entry points which are listed below:

  •  UPS drivers who can accept packages, 
  • UPS drop boxes, 
  • UPS Access Point locations, 
  • The UPS Store locations, 
  • authorized shipping outlets and commercial counters, 
  • alliance locations and
  •  customer centers attached to UPS facilities

For additional convenience, UPS has continued to expand its access point network. Its access point network includes local small businesses, national retailers and self-serve lockers. The access point network allows consumers to ship or redirect packages to an alternate delivery location or drop off pre-labeled packages, including returns. Globally, there are 40,000 locations included in the access point network of UPS and the US alone has 21,000 of them. The company has also established a robust portfolio of returns services since the growth of e-commerce has led to its clients needing a channel for efficient and reliable returns. The returns services offered by UPS cover 145 countries and include a large range of cost-effective label options and a broad network of consumer drop points, as well as a selection of returns technologies for convenient and friction-free consumer experience.

Global Small Package Services by UPS:

United States operations:

The global small package reporting segment of UPS includes the US domestic package and international small package segments. In the United States, UPS offers a full spectrum of U.S. domestic guaranteed air and ground package transportation services, and its U.S. ground fleet serves all business and residential zip codes throughout the country. The air network of UPS offers several delivery options inside the United States including the same day, next day, two day and three-day delivery alternatives. UPS also has an extensive ground network in the United States. Customers can use this network for day-definite guaranteed ground delivery services. The company delivers more packages in the US than any other delivery service provider. On average it delivers 15 million packages daily. Most of these packages are delivered within one to three business days. The company also offers UPS SurePost in the US which is a cheap option that customers can use for nonurgent lightweight packages.

UPS International Operations:

The international package reporting segment of UPS includes its small package operations in Europe, Asia Pacific, Canada, Latin America, and the Indian sub-continent, Middle East and Africa. After the United States, Europe is the largest market in Europe. Internationally, the company provides a wide range of guaranteed day and time-definite international shipping services. The guaranteed time-definite express options provided by UPS include Express Plus, Express and Express Saver. The UPS Worldwide Expedited shipment for international packages that do not require express services is available from 80 origin countries to 220 destination countries. On the other hand, UPS Standard delivery services provide cross border delivery services within Europe, between the US and Canada as well as between the US and Mexico. Europe, which is the largest international market of UPS accounts for almost half of its international small packages shipments. Due to the importance of the European market in the international business of UPS, the company has continued to make major investments in its European infrastructure including the creation of new hubs in London, Paris and Eindhoven, the Netherlands. As intra-Asian trade has continued to see higher growth, Asia Pacific has also become a strategically important region for UPS. The company has also formed alliances with the local delivery companies in the Asia Pacific to make delivery simpler and efficient in the region. With the support of local delivery companies, UPS serves 40 countries in the Asia Pacific region. In China, UPS entered into a joint venture with SF Express. SF Express has an extensive network in China and using it UPS was able to achieve higher market penetration in China which is strategically the most important market in the Asia Pacific region. 

Other international markets of strategic importance for UPS include India and Dubai. The company has also expanded its range of services for the Middle East.

Supply chain and freight services by UPS

Internationally, a large number of companies operate large and complex supply chains. UPS works as a supply chain partner providing supply chain and logistics solutions to several large companies throughout the world. In recent years, as the scope of e-commerce has grown and technological innovation has also led to faster international expansion of businesses, supply chains have also become large and much more complex. Companies have supply chains located all over the world in various corners from China to Brazil. The supply chain and freight services of UPS include forwarding, truckload brokerage, logistics, UPS Freight, UPS Capital and other businesses. Companies that operate international supply chains need a global service offering that includes transportation, distribution, and international trade and brokerage services, with complementary financial and information services. UPS offers a one-stop solution to all their needs. Most of these large and international companies outsource their non-core logistics activities to logistics providers like UPS. As the competition has grown internationally and new high growth markets have emerged, companies require flexible and responsive supply chains to support their international business. UPS provides a large range of supply chain solutions to meet the demand from these businesses.

The supply chain solutions portfolio of  UPS :

Forwarding:

Apart from being one of the largest U.S. domestic air freight carriers, UPS is also one of the largest international air freight forwarders offering a portfolio of guaranteed and non-guaranteed global air freight services. The company also provides multimodal transport services between most major ports of the world.

Truckload brokerage:

In 2015, UPS acquired the Coyote Logistics, LLC, a U.S.-based third party logistics provider which has allowed the company to achieve higher synergy in  areas of purchased transportation, backhaul utilization, technology systems and industry best practices. Combining its fleet capacity with Coyote’s broad carrier network, the company has created a customized capacity solution for all markets., customers and situations. 

In 2017, the company also acquired Freightex which is a UK based freight brokerage firm. This acquisition allowed the company to add a  full-scale truckload brokerage and transportation management solution to its European portfolio. In this way, the company created a single stop solution for shippers across Europe for freights ranging from parcel to full truckload. UPS rebranded Freightex as Coyote Logistics in 2018. It is a highly trusted name internationally. The European division of Coyote Logistics complements the NorthAmerican truckload 

Logistics:

UPS also provides value-added fulfillment and transportation management services to customers throughout the world through its global network of distribution centers and field stocking locations. UPS has established a global network of more than 1000 facilities in more than 100 countries that helps it ensure that the right products and parts are available at the right location at the right time. The company has placed its distribution centers strategically near UPS air and ground transportation hubs to ensure faster delivery. In 2019, the company also launched efulfillment program to help e-commerce businesses provide their services seamlessly all over the world and manage multiple marketplaces. UPS expanded its e-commerce solutions for SMBs worldwide, offering streamlined fulfillment and shipping services to consumers in the U.S. and Canada. Apart from being compatible with more than 20 marketplaces, the efulfillment program also includes a technology platform and physical fulfillment services like storage, order processing, packaging, and shipping. The service parts logistics solutions of UPS called UPS Post Sales relies on a global network of over 950 central and field stocking sites. UPS also announced an expansion of the foreign trade zone (“FTZ”) management services in the U.S. in 2019. Since it acquired Zone Solutions in 2017, the company has developed a comprehensive FTZ solution to help the clients manage the end to end process from managing customers to inventory control.  

UPS Freight:

UPS Freight offers regional, inter-regional and long-haul less-than-truckload (“LTL”) services in all the 50 states of the US, as well as Canada, Puerto Rico, Guam, the U.S. Virgin Islands, and Mexico. Apart from that, UPS Freight provides reliable LTL service backed by a day-definite, on-time guarantee without charging extra fees. Through the help of shipping, visibility and billing technologies, the UPS customers can create electronic bills of lading, monitor shipment progress and reconcile shipping charges. UPS uses several such user-friendly technologies like UPS WorldShip, Quantum View, and UPS Billing Center.

Customs brokerage:

UPS is among the world’s largest customs brokers based upon the number of shipments it processes every year as well as on the basis of the number of dedicated brokerage employees worldwide. UPS provides customs clearance services as well as product classification, trade management, duty drawback and consulting services through STTAS, a UPS company.

Hub and spoke model of air operations:

The international air network of UPS operated on a hub and spoke model and the central hub of its international air operations is located at its Worldport Hub in Louisville, Kentucky. The company also has regional air hubs in Dallas, Texas; Ontario, California; Philadelphia, Pennsylvania, and Rockford, Illinois. These regional hubs support the operations of the central hub in the US. The company has established similar regional hubs all over the world at key locations to manage its operations throughout the world in other continents too. The European air hub of UPS is located in Cologne, Germany. In the Asia Pacific, its regional air hubs are located in Shanghai, China; Shenzhen, China, and Hong Kong. Apart from that UPS also has an air hub located at Hamilton, Ontario in Canada. One regional air hub in Miami, Florida covers the Latin American and Caribbean air operations of UPS. The company has maintained an international network design that allows for higher cost efficiency and the company is able to achieve higher efficiency and process more packages while using fewer, larger and fuel-efficient aircraft. The hub and spoke pattern adopted by UPS is also used by several leading airline companies operating inside the United States.

How does UPS make money (sources of revenue)?

UPS generates its revenue mainly from three categories of services or reporting segments. These reporting segments include  US domestic package, International small package and supply chain and freight. The largest segment accounting for the highest part of the company’s revenue is the US domestic package segment. US is the largest market of UPS accounting for the highest part of the company’s revenue. The net revenue of UPS in 2019 reached $74.1 billion of which it generated $46.5 billion from the US domestic package segment. The international package segment generated $14.2 billion whereas the supply chain and freight segment generated $13.4 billion in 2019. 

In its US domestic package operations, the company offers three types of package services including Next Day Air, Deferred and Ground. 

The distribution of average daily package volume in the three categories in 2019 was as follows:

Average Daily Package Volume (in thousands): 

  • Next Day Air: 1,889.
  • Deferred: 1,622.
  • Ground: 15,176. 
  • Total Average Daily Package Volume: 18,687. 

Average Revenue Per Piece:

  • Next Day Air: $17.74
  • Deferred :  $12.62
  • Ground :  $8.55
  • Total Average Revenue: $ 9.83

The overall volume of UPS deliveries increased in 2019 compared to the previous year across all products led by the strong growth in its Next Day Air and Deferred categories. There has been a structural shift to faster delivery in retail and e-commerce which has led to growth in overall volume from UPS.

The overall volume of UPS deliveries increased in 2019 compared to the previous year across all products led by the strong growth in its Next Day Air and Deferred categories. There has been a structural shift to faster delivery in retail and e-commerce which has led to growth in overall volume from UPS. The company also experienced higher growth from a  large number of big businesses as well as SMBs. Amazon, which is the largest customer of UPS, also drove higher volume growth. UPS also experienced growth across the business to consumer shipments category. Business to consumer shipments represented approximately grew 11.3% for the year driven mainly by growth in e-commerce and retail. Apart from that UPS experienced higher growth across residential and commercial ground products.

Other sources: UPS Annual report 2019.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.