UPS rethinks its express business model in Colombia

Americas editor James Cartledge looks at how UPS is taking advantage of Colombia’s growth market with a new business model and a key alliance with local specialist Deprisa. With a buoyant economy and good expectations of continuing growth in package volumes, Colombia now looks set to benefit from a Free Trade Agreement with the United States that could pass through the US Congress this summer.

A good time, then, for a major international player like UPS to strengthen its links with the South American country.

The company has forged a new partnership agreement with local firm Deprisa, part of one of the largest airlines in Latin America, AviancaTaca.

The deal will see Deprisa’s customers gaining access to 220 international markets through the international logistics network of UPS, and the company’s 10 flights per week in and out of the Colombian capital Bogata.

AviancaTaca executive president Fabio Villegas Ramírez has said that for his company, the alliance with UPS represents “a strategic step toward offering a first-class express courier service to customers in Colombia”.

He said: “Our objective is to offer reliable service and timely deliveries.  With the support of UPS — one of the largest logistics providers in the world — we hope to increase our presence in the domestic and international express delivery markets.”

Meanwhile, UPS will gain both a local vendor for its international services in Colombia as well as a “very robust and reliable” domestic partner to take care of pickup and delivery services for its customers.

A new model

Speaking to Post&Parcel today, UPS Colombia general manager Camilo Angarita revealed that the alliance with Deprisa was actually part of a more fundamental rethink of UPS operations within Colombia.

Alongside its UPS Air Cargo and UPS Supply Chain Solutions units in Colombia, the company has reformed its express operations under a new entity, called UPS Servicios Express.

Angarita explained that previously, UPS had used a contractor to provide everything in Colombia on its behalf, from sales and marketing to finance, customer service, deliveries and pick-up.

“Now, we have changed the model to take ownership of most of those functions other than pickup and deliveries,” he said. “To cover that operational portion of our business we have our partnership with Deprisa and Avianca.

“We’re now operating directly, we’re relying on an outside service provider for the pickups and deliveries, who in addition to that, is now going out to the market and offering international services operated by UPS.”

So while UPS has its own operations in Colombia, complete with 32 centres and customer counters Deprisa’s national network of 630 retail outlets will also now work to sell UPS international services.

Along with its retail network, Deprisa brings a fleet of 59 aircraft and 165 ground vehicles to the UPS alliance, along with 370 motor couriers and more than 2,300 shipment experts who have hazardous goods training.

Deprisa’s “robust” network of existing infrastructure was one of the key reasons for UPS to forge an alliance with the company, Angarita said, along with the obvious benefits of aligning with the largest airline operating in the Colombian market and one of the largest in the Latin American region.

He said: “By partnering today, we will grow immediately, right from the start by UPS taking directly international volume and by Deprisa taking more internal volume. We will both grow immediately.”

With some rearranging of cargo space to provide more allocation for small packages, the UPS Colombia general manager said that initially the 10 UPS flights in and out of Bogata should be “more than enough” to move the additional volume expected from the new alliance.

In the future, once the partnership settles, Angarita said UPS customers could expect to see a second stage “where we would very likely improve our transit time proposals from Colombia and into Colombia”.

Growth expectations

For the next few years, UPS is expecting small package volumes to grow by around 7% or 8% following on from good growth in the economy under former President Álvaro Uribe and current President Juan Santos.

“Colombia has become a very important market for UPS,” Angarita said. “The country has had at least eight years of healthy economic performance, and is expected to grow in that direction.

“Our operations in Colombia have performed according to plan and exceeded targets in many cases, so with the healthy economy, there is a growing market and a number of opportunities that UPS wants to take advantage of right now.”

Growth in areas like e-commerce are expected to contribute towards more opportunities in Colombia, along with Free Trade Agreements with the likes of Mexico and Chile, which could be dramatically followed by a long-awaited Free Trade Agreement with the United States that could finally see resolution this summer.

The agreement would potentially bring down trade tariffs with estimates of a $1bn boost to US exports, UPS believes.

A delegation of six US Congressman visited Colombia earlier this month to suggest that a bilateral agreement could be reached as early as this July, with the Santos government making concessions to improving labour rights in Colombia.

Although some potentially thorny issues are yet to be resolved between the two countries, Angarita expressed confidence that the Free Trade Agreement would be signed.

“We expect it to come through finally this year,” he said. “But there are the rest of the Free Trade Agreements signed by the Colombian government these past few years that mean package volume growth could get higher than 7%.”

In the mean time, there are still difficulties to be overcome in dealing with the Colombian market – not least with the infrastructure problems in the country as well as outdated customs system.

Yet here, too, Angarita sees progress in Colombia, and UPS is working to support government efforts to bring improvements.

As part of a government-wide implementation of a centralised computer platform, expectations are that the country’s customs will benefit from being brought into the electronic age, allowing customs processes to be “more productive and efficient”.

“In terms of infrastructure, there are significant projects and there is significant money on the table and there is consensus that the country really needs to do something if it is to be competitive,” Angarita said.

“In both cases I think there will be significant progress in the next few years.”

• In the forthcoming June 2011 edition of Post&Parcel’s sister title Mail & Express Review, we take a look at the reformation of Colombia’s national postal operator, 4-72, in discussion with its president, Juan Ernesto Vargas Uribe. For subscription details, click here »