UPS entry could even the same-day delivery playing field

Discussion
Photo: UPS
Jun 14, 2021

UPS recently indicated that it is exploring a same-day delivery option at its Investor & Analyst Day event.

“We don’t have a same-day product today, as you know, and so we’re looking at it,” said CEO Carol Tomé in response to a question on emerging competitors at last week’s event.

She told analysts that same-day delivery for UPS “could be a network outside of our network, a different product, a different offering.” The logistics publication, FreightWaves, assumed that meant the use of contractors.

“We don’t have this all-the-way figured out, but we’ve got a team of people looking at it. … I think there’s an opportunity there that will be very different than what we’ve done in the past,” said Ms. Tomé.

Same-day delivery received a boost during the pandemic, particularly as e-grocery sales took off. Instacart expanded to provide same-day options for Dick’s Sporting Goods, Bed Bath & Beyond, Sephora, 7-Eleven and other non-grocery channels.

Beyond Instacart, UPS would face same-day competition from DoorDash, Uber, and Target-owned Shipt. FedEx offers same-day services in limited markets. Amazon.com also continues to aggressively push its same-day options.

UPS has been raising prices and enforcing volume limits amid a heightened focus on profitable growth since Ms. Tomé took over as CEO last June. At its investor event, management laid out a three-year growth plan that focuses on SMBs (small and medium-sized businesses), healthcare and international.

Expanding Saturday and Sunday deliveries as well as last-mile delivery options are part of UPS’s goal to significantly increase market share with SMBs, and adding same-day delivery could further enhance offerings to the sector.

The company has forecast slower growth for enterprise clients, which include Amazon and other large e-commerce players that have traditionally offered lower margins. The refocus comes as Amazon has been increasingly managing its own deliveries as it builds out its logistics network.

Ms. Tomé stressed that UPS would be selective with customers in pursuing growth. “Not all packages are equal,” she said.

DISCUSSION QUESTIONS: How do you see same-day services — delivery and pickup — taking shape in retail over the next couple of years? How would a UPS same-day delivery service affect the shipping dynamic between the biggest retailers and SMBs in the U.S.?

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Braintrust
"Amazon learned everything it could from UPS and FedEx and, as is their model, copied what they saw and have built a competing service. Now UPS has to counter attack."

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22 Comments on "UPS entry could even the same-day delivery playing field"


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Mark Ryski
BrainTrust

The same-day delivery bus has already left the station and has become a consumer expectation. Given the consumer demand for same-day, as a leading shipping provider, UPS needs to get in the game or risk being disrupted by the others who do. Clearly the traditional economics of shipping make same-day a real challenge for a traditional player like UPS, but they need to jump on this.

Gary Sankary
BrainTrust

I agree with you Mark. This is the legacy brand trying to play catch up with the disruptors. This is clearly the future of consumer deliveries and I agree with you that UPS needs to get in the game.

Neil Saunders
BrainTrust

“We don’t have this all-the-way figured out” – you might not, UPS. But guess what, Amazon does! It figured it out years ago! In short, UPS is playing catch-up. Luckily, this service is one that many retailers and businesses need. I guess the success of UPS will come down to cost. Many retailers currently ship from stores for same-day delivery and if UPS can provide a service that complements and streamlines that in a way that makes economic sense for retailers, then there is an opportunity for growth.

Rick Watson
BrainTrust

The standard is moving away from same-day and next-day into 10 minutes. UPS is a generation behind. It would need to acquire to make significant progress here.

Bob Phibbs
BrainTrust

I just keep coming back to the economics of this. Who pays the cost? It’s great to talk about DoorDash and Uber Eats but when you look at the big chunk they take out of the profit over the restaurant it becomes a deal with the devil.

Ian Percy
BrainTrust

Totally agree with you Bob. Actually, I think all holes retail digs for itself should be at the same depth. That way the race to the bottom becomes more fair. Forget the level playing field.

This morning while out with the dog at 5 AM in 80 degree AZ heat, I wondered who set up the focus group that asked customers if they’d like delivery of a product within hours. As you imply, Bob, the devil is in the data.

Bob Phibbs
BrainTrust

And Ian, isn’t it like asking, “who wants cake?”

Ian Percy
BrainTrust

Exactly! This is why it becomes a fatally self-inflicted wound. I may be pushing metaphors too far but it’s like a spoiled child, someone who’s always been giving everything — there is no end to the expectations aka entitlements. Not good for the child or the parent. In this case, first it was free delivery, then 3-days, then same day and now we’re down to hours. Not good for the retailer and, surprisingly if we think about it, not good for the customer either.

Ken Morris
BrainTrust

As Amazon builds out its own fleet, UPS will absolutely need to provide same-day delivery. UPS has a huge opportunity to leverage its fleet for same-day services. They have the infrastructure and have started limiting their retail clients to maximum limits which negatively impacted several of our clients during their peak season last year. These limits will allow UPS to pivot to this same-day delivery model and play the same game that Amazon is playing. Amazon learned everything it could from UPS and FedEx and, as is their model, copied what they saw and have built a competing service. Now UPS has to counter attack. Also look for retailers who use MFCs to essentially connect them to the UPS system. Meanwhile, SMBs will need to find ways to compete with Amazon and Walmart. Faster, faster, faster. It all makes sense.

Bob Amster
BrainTrust

Bob Phibbs and I have the same question. The ability to execute same-day delivery is there. UPS has an infrastructure that it can expand to provide this service. But that comes at a cost and the big question is, are the services and the retailers finally going to ask the consumer to pay for the privilege?

Ron Margulis
BrainTrust

I’ve written on this platform several times that Amazon should acquire the U.S. Postal Service. They’ve actually gone one better and created a brand new Amazon postal service based on their learnings from USPS, UPS and FedEx during the past few decades. Those other three services are now fighting for Walmart, a few other premier retailers and the leftover scraps (no offense intended).

Dave Wendland
BrainTrust

Although UPS is a bit late to the party, they MUST get into the game. In recent years, the entire delivery model has seismically shifted due to the fast-paced gig economy (and this accelerated far more quickly in the past 18 months). Same-day is a minimum ante to even be on the same playing field with those who have evolved to offer 30-minute delivery. I anticipate a tsunami of acquisitions coming soon — further disruption in delivery is mere moments away.

David Naumann
BrainTrust

Developing cost effective same-day delivery is essential for the survival of UPS and they need to do it quickly, as they are far behind their competitors. Customer expectations continue to raise the bar and, for many products, consumers expect one- or two-hour delivery. UPS should shoot for a model faster than same-day.

Shep Hyken
BrainTrust

So Amazon set the bar. Now we’re going to have a same-day delivery war. For UPS, thank you for helping to create more competition in this area. We need it to keep quality up and prices reasonable. Also, not offering a comparable service could take market share away from UPS. To really level the field, we’ll need to see other carriers get into same-day delivery.

Matthew Brogie
BrainTrust
1 month 22 days ago
The demand for same-day pick up and delivery will continue to grow very quickly, fueled in large part by expectations and experience generated during the pandemic. Today we expect to be able to get 10-minute delivery of a hot meal from our favorite restaurant, a bottle of wine from our local liquor store, and even a candy bar from the convenience store down the road. As the market size and demand for near real-time delivery continues to grow, we’ll see significant innovations that make even the smallest deliveries commercially viable. There is so much R&D going into self driving vehicles, drones and other autonomous delivery that will do nothing but continue to heat up. There is no one better to tackle opportunities like this, and of this scale than a company like UPS with billions in EBITDA and over 100 years of experience innovating how inventory moves from source to consumption. I’m a bit surprised that they have taken as much time as they have to get seriously involved, but fully expect that they’ll contribute… Read more »
Mark Heckman
BrainTrust

The more delvery service providers in the game, the better the chance for a profitable business model to emerge. For example: as physical grocery stores evolve, having the ability for a shopper to buy perishables and impulse items in person, but yet give the shopper the affordable, time-saving option by ordering in-store and receiving the bulky and “repeated use items” later that day would be a plus. As UPS ups their game and becomes a player in this space, I could see significant partnerships with retailers forming, IF innovation and technology allows them to offer the service at a reasonable price.

DeAnn Campbell
BrainTrust

As UPS and FedEx become adept at same-day service, Amazon will set the bar at one hour to hold onto their e-commerce captaincy. Great for the customer, but it’s going to put even more stress on retailers who don’t have in-house access to a robust last-mile delivery network like that of Amazon – and soon Walmart.

Ananda Chakravarty
BrainTrust
Same-day delivery is a high cost logistical nightmare. Only the major delivery services have the capability of reliably servicing this market and would need to do it at the expense of existing business, hence incentive is low. There is also a limited set of customers demanding this model so market potential is reduced. That said, capturing this space could drive dramatic market change and hence the reason why UPS, DHL, FedEx and even Amazon pursues this next rung in the delivery game. The shift to same-day will continue to be steady and slow until it reaches a tipping point. A great article on this can be found here. For UPS, their shipping focus has reset to the SMBs anyway – higher profitability. The large retailer market is one the carriers need but are unable to push for higher profits. As same-day scales up (under a separate banner for UPS) there will be adoption, but not uniform. Let there be no illusion, only a subset of the population will digest the additional price for a package… Read more »
Jlauderbach
Guest

Amazon has a few advantages over UPS which will be hard to overcome. Amazon ships from their warehouses most of the time. UPS will have to pick up the product somewhere and return it to a break vault and reship. This is counter the golden rule of logistics – “touch it once.” Amazon is not unionized. They can make changes much faster than UPS who has the burden of existing contracts. That is why use of contractors is in play, but it also adds more overhead than what Amazon has. Amazon has a fleet of smaller vehicles which facilitate more efficient same-day small parcel delivery. UPS has a fleet of high-volume vehicles designed for more commercial freight than consumer same-day. These differences will make UPS same-day delivery quite a challenge in terms of the profitability potential.

Brandon Rael
BrainTrust

UPS is a late entrant in the game that Amazon has both disrupted and innovated in the age of instant gratification and same-day delivery. The traditional operating shipment model of 3-5 business days is no longer the standard. Customer expectations are around choice and the ability to choose their delivery preferences on how, when, and where they will receive their products.

The state of the supply chain and customer fulfillment industry calls for same-day delivery mechanisms, and UPS has to have the ability to play in this arena. Whether or not they are a late entrant is another story. However, they offer the consumer another choice, especially if they are satisfied with the UPS brand and overall experience.

James Tenser
BrainTrust

UPS could certainly try to develop a separate local, point-to-point rapid service that enables delivery within hours, but it would have to bypass regional distribution centers to make it happen. The key enabler (as Amazon and Target/Shipt understand well) is the ability to fulfill high-demand items from locations close to the delivery points.

Since UPS does not stock goods in retail stores or fulfillment centers of its own, my money is on an acquisition of a service like DoorDash or Postmates.

Patricia Vekich Waldron
Staff

Same-day delivery is table stakes, and UPS is behind the trend. I’m sure it can catch-up with Amazon, but their cost and business model will need a radical overhaul to do so profitably.

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Braintrust
"Amazon learned everything it could from UPS and FedEx and, as is their model, copied what they saw and have built a competing service. Now UPS has to counter attack."

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