UPS Access Point Network Could Help Improve Margins And Competitive Edge

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UPS: United Parcel Service logo
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United Parcel Service

One of the major hurdles for package delivery is being present at the delivery location. This is especially common for the working population living in urban areas. If the receiver is not available, delivery has to be attempted at some other time or packages are just left at doorsteps. In order to cater to such residential package deliveries, United Parcel Service (NYSE:UPS) has announced that it will expand its UPS My Choice and UPS Access Point network. [1] Using these services, online shoppers will be able to choose a convenient pick-up location or locker for their deliveries, and collect the packages upon producing a valid IDs and tracking numbers.

UPS My Choice is a service using which online shoppers can track their packages, reschedule and reroute packages, and sign for packages online. UPS Access Point locations are generally local businesses such as dry cleaners and grocery stores, where packages can be collected during the evening hours and on weekends.

These services offer convenient options for customers to collect or drop off their packages. The primary benefit that UPS would generate from these services is the improvement in margins. Apart from that, it will help give UPS an edge in the increasingly competitive logistics industry.

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Delivering to Access Points will help reduce costs

Presently, there are 300 UPS Access Point locations in New York City and Chicago. UPS is working on installing self-service smart lockers in Chicago. It plans to add 4,400 UPS Stores to its Access Point network, significantly increasing its pick up locations. By the end of 2015, UPS expects to add 8,000 Access Point locations in key markets in Europe and the Americas. Currently they have 12,000 Access Point locations only in seven countries in Europe. UPS’ My Choice services will be expanded to 15 countries in North America and Europe.

By delivering to Access Point locations or lockers, UPS will not have to make last mile deliveries to the recipient’s residence, thereby saving up on fuel expenses and time. Every minute that a UPS truck driver saves every day leads to savings of around $14.5 million a year. [2] Additionally, UPS will not have to worry about making repeated delivery attempts when the recipient is not at home. They can drop off the package at the nearest Access Point, which can be collected later by the recipient. Undelivered packages occupy non-revenue generating space in trucks and UPS hubs, which essentially is a cost to the company.

Rising volumes of e-commerce packages have put UPS’s domestic package delivery margins under pressure. UPS’s revenue per package was stagnant in 2012 and declined 0.6% in 2013. Revenue per package declined 1.4% and 2.0% in the first and second quarters of 2014 respectively. [3] The Access Point locations will complement UPS’s dimension based pricing strategy (click here to read about it) in handling e-commerce packages and help improving margins by reducing delivery costs.

Competitors already provide such services

UPS’s primary competitor, FedEx (NYSE:FDX)  already provides delivery location options, wherein customers can choose to pick up or drop off packages any of its 2,400 locations in the U.S. FedEx also offers locker services, but this is limited to Dallas and Memphis. One of UPS’s major customers, Amazon (NASDAQ:AMZN), also offers locker services, which provides customers the alternative of collecting packages from these lockers instead of having them delivered to their residence or workplace.

The difference between UPS’s Access Point network and FedEx and Amazons services is the scale. As mentioned above, UPS will be increasing its Access Point locations by 8,000 across Europe and the Americas. In the U.S., UPS’s 4,400 stores will be a part of its Access Point Network, apart from the additions of local businesses. This is significantly higher than FedEx’s present locations.

UPS’ advantage over Amazon is that many local businesses, such as convenience stores, will consider Amazon as its competitor, and therefore are less likely to agree to house Amazon’s lockers. On the other hand, a logistics company will not pose any threat to such businesses. Such businesses will also benefit from the extra revenue earned by acting as a UPS Access Point location.

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Notes:
  1. UPS Gives Online Shoppers Around the World Delivery Confidence, Control and Convenience, October 08, 2014, www.ups.com []
  2. UPS Launching Service To Cut Down on Delivery Stops, October 8, 2014, onlinw.wsj.com []
  3. UPS Q2 2014 Financials, www.ups.com []