UPS Expansion Flurry Sets Up New Services

UPS Expansion Flurry Sets Up New Services
From THE ATLANTA JOURNAL AND CONSTITUTION, May 5th, 2001
By Dave Hirschman, The Atlanta Journal and Constitution Knight Ridder/Tribune Business News

May 5–United Parcel Service has been on a long shopping spree.

During the last 12 months, the Sandy Springs transportation giant has filled its corporate cart with a retail shipping franchise chain, an international freight forwarder, a Latin American computer repair firm, a U.S.

bank and a pair of commercial mail handlers, among other acquisitions.

Is there a theme to the flurry of seemingly unrelated purchases? Or is UPS, cash heavy after its $5.47 billion 1999 stock offering, snapping up bargains in a down market? Mike Eskew, UPS vice chairman, said all of UPS' recent acquisitions — as well as a slew of partnerships and alliances — advance its oft-stated goal of "enabling global commerce." "Our strategy drives our acquisitions — not the other way around," Eskew said. "Investment bankers come to us every day with proposals that offer attractive values. But unless they fit our strategy, we're not interested." To be a good match, Eskew said, companies must serve an "attractive market," leverage UPS' core delivery network and expand its international reach.

UPS is a dominant player in the $55 billion domestic shipping market, but company executives see far larger opportunities in the $3.2 trillion global transportation, logistics and finance markets.

For example, when UPS bought Challenge Air Cargo, a Latin American freight carrier in Miami in 1999, the move wasn't made in isolation.

Since that time, UPS has obtained Latin American routes for its own fleet of cargo jets and bought Comlasa, a Latin American computer repair firm.

Now, UPS jets that used to remain idle during daylight hours in Miami and Houston fly throughout Latin America before returning to the United States each night. Here, they carry next-morning domestic packages until the wee hours. Meanwhile, Comlasa is helping transform the cargo those planes carry to small, high-margin computer parts instead of less profitable heavy freight.

"In setting our strategy, we try to look out five or 10 years," Eskew said. "We've recognized for some time that globalization, customer pull and speed were going to drive our business." But Satish Jindel, a transportation consultant in Pennsylvania, said UPS also appears to be preparing for other fundamental shifts in its industry, including the eventual privatization of the U.S. Postal Service.

When UPS announced this month it had bought Mail2000 and RMX, companies that handle bulk mail and "hybrid" printed e-mail, it signaled UPS intends to move into entirely new markets.

"When the postal monopoly (on first-class mail) ends, UPS is positioning itself to take over significant portions of that business," Jindel said.

"There will be a rush when deregulation comes, and UPS is getting ahead of it." UPS staff members are adept at managing complex systems and could be much more efficient than the post office at processing the mail, Jindel said.

The role of the U.S. Postal Service is bound to shrink, he said, until mail carriers handle only the "last mile" of future deliveries. "At some point, the postal service will be strictly doing deliveries," he said.

But Art Hatfield, transportation analyst for Morgan Keegan & Co., said UPS' acquisitions have more to do with accommodating its customers than reacting to the postal service or other external influences.

More UPS clients want the firm to handle billing and finance as well as shipping — and that's why UPS has been spending tens of millions of dollars each year to expand logistics and capital subsidiaries.

"Outsiders may wonder why UPS would want to buy a bank or a logistics company," Hatfield said.

"But the flow of funds and information are increasingly linked to flow of products," he said. "UPS wants to allow its customers to just focus on running their factories and producing their products — and UPS will handle everything else.

"That's the direction all of this is heading."

—– To see more of The Atlanta Journal and Constitution, or to subscribe to the newspaper, go to http://www.ajc.com (c) 2001, The Atlanta Journal and Constitution. Distributed by Knight Ridder/Tribune Business News.

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THE ATLANTA JOURNAL AND CONSTITUTION, 05th May 2001