UPS im­ple­ments $20 bil­lion re­struc­tur­ing pro­gramme

Pack­age de­liv­ery com­pany aims at au­tomat­ing its fa­cil­i­ties and off­set­ting the proit squeeze from home de­liv­er­ies

The Gulf Today - Business - - INTERNATIONAL -

NEW YORK: United Par­cel Ser­vice (UPS) is dou­bling down on ship­ments be­tween busi­nesses as part of a $20 bil­lion over­haul aimed at au­tomat­ing its fa­cil­i­ties and off­set­ting the profit squeeze from home de­liv­er­ies.

The world’s big­gest pack­age de­liv­ery firm’s em­brace of ex­pen­sive ‘last-mile’ home ship­ments of ev­ery­thing from clothes to car tires has squeezed mar­gins as it com­petes with ri­val ship­per Fedex Cor­po­ra­tion, which ac­cepts less of that busi­ness.

UPS shares fell 2.9 per cent to $119.69, af­ter ex­ec­u­tives boosted long-term earn­ings targets while main­tain­ing cost-re­duc­tion goals and stop­ping short of say­ing they would take fewer home de­liv­er­ies.

UPS said its re­struc­tur­ing plan will add $1.00 to $1.20 to its ad­justed earn­ings per share by 2022. That in­cludes up to $1 bil­lion in sav­ings from more ef­fi­cient sort­ing fa­cil­i­ties and pur­chas­ing along with a vol­un­tary re­tire­ment pro­gramme.

Some in­vestors, how­ever, want the project to slash more costs.

UPS is still more prof­itable than Fedex, Morn­ingstar an­a­lyst Keith Schoon­maker said, but added “Fedex may be bet­ter at say­ing ‘no’ to low-profit vol­ume.”

At­lanta-based UPS, now in the early stages of its largest cap­i­tal spend­ing cam­paign since the 1980s, aims to re­bal­ance its mix of cus­tomers and pack­age vol­ume to in­clude more small busi­ness, health­care and in­ter­na­tional ship­ments, Chief Ex­ec­u­tive Of­fi­cer David Ab­ney said at an in­vestor con­fer­ence in New York.

UPS has raised prices for cer­tain res­i­den­tial de­liv­er­ies to in­su­late prof­its, and plans to woo more “high value” home ship­ments of items like in­sulin, ex­ec­u­tives said.

“We are go­ing to be more se­lec­tive,” Ab­ney told Reuters.

UPS ear­marked most of the spend­ing from its three-year cap­i­tal in­vest­ment project to au­to­mate pack­age pro­cess­ing. That should help it bet­ter man­age surg­ing e-com­merce pack­age vol­umes and bring the com­pany in line with Fedex, which is wrap­ping up a roughly $10 bil­lion in­vest­ment in its mostly au­to­mated net­work.

Mar­gins in UPS’ do­mes­tic unit that con­trib­utes more than half of com­pany prof­its fell to 12.1 per cent in 2017 from 13.8 per cent in 2012 as res­i­den­tial de­liv­er­ies dis­placed more prof­itable busi­ness de­liv­er­ies, which now ac­count for about half of to­tal vol­ume.

UPS, which is al­ready the largest ship­per of busi­ness-to-busi­ness (B2B) e-com­merce pack­ages, is adding and en­hanc­ing ser­vices for that mar­ket, which is val­ued at nearly $1 tril­lion in the United States.

That is roughly twice the size of the faster-grow­ing, busi­nessto-con­sumer (B2C) seg­ment dom­i­nated by UPS client and bud­ding ri­val ship­per Ama­zon, which uses its mus­cle to ne­go­ti­ate lower ship­ping rates than smaller busi­nesses.

UPS on Thurs­day said it will sup­port busi­ness cus­tomers with new prod­ucts, in­clud­ing an app that helps users like hos­pi­tals track de­liv­er­ies and route them to the right lo­ca­tion within their sprawl­ing fa­cil­i­ties - re­duc­ing lost pack­ages, costs and headaches.

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