Amazon is UPS’ biggest customer, competitor
United Parcel Service and its brown delivery trucks ruled American streets for decades.
But Amazon, UPS’ largest customer and competitor, could overtake the Sandy Springs, Ga.-based company as the nation’s largest package carrier this year.
The rivalry traces its roots to the 2013 holidays, when a meltdown of the UPS shipping network led to millions of gifts ordered not arriving in time for Christmas. Amazon issued gift cards and refunds to mollify angry customers — and rapidly built out a home delivery network so it wouldn’t have to rely so much on UPS.
The high-stakes competition is one more striking example of how tech titans are disrupting traditional industries and pressuring old economy stalwarts to reinvent themselves or risk being left in the rearview mirror.
How the battle plays out could have a major impact on how consumers shop, how quickly they get their packages and how much they pay to have goods delivered. Also hanging in the balance are the fortunes of UPS’s 534,000 employees, and lucrative UPS union jobs that pay drivers nearly $40 an hour.
It isn’t only Amazon’s warehouses, airplanes and trucks that are shaking up things. The online retail behemoth also has popularized the idea of “free shipping” — a potentially existential threat for UPS, which has long been paid handsomely for delivering goods to stores, offices and homes.
Amazon delivered more than 5 billion packages in the U.S. in 2021, while UPS delivered roughly 5.5 billion U.S. packages, according to company figures and industry estimates. Amazon’s numbers are far from exact, because the company doesn’t share all of its shipping data.
Amazon has said it could surpass UPS this year, and it’s not alone in that prediction, even though UPS boasts a more extensive air and ground network that it built up over a century.
Marc Wulfraat, president of logistics consulting firm MWPVL International, believes Amazon will surpass UPS in U.S. package volume in 2022 — and in five years have a logistics network large enough that it won’t need to rely on UPS or the U.S. Postal Service.
So far, UPS’s revenue and profit have kept growing despite the competitive threat. That’s because the number of packages are rising amid the broader surge in ecommerce. That surge has gone into an even higher gear during the pandemic, with consumers ordering anything and everything to be shipped right to their doorsteps.
UPS has grown its own revenue by two-thirds since 2014, including a 15 percent increase last year.
It expects its revenue to top $100 billion for the first time in its history this year. Its profit margins, while volatile, have remained generally strong.
Unlike FedEx, which cut ties with Amazon a few years ago, UPS continues to treat Amazon as a customer, not just a competitor. Amazon and its affiliates represented about 11.7 percent of UPS revenue last year, more than any other retailer.
“We have a great relationship with Amazon. And we have mutually agreed about the volume that we should take and the volume that they should keep that works best for both companies,” UPS Chief Executive Carol Tom told investors earlier this year.
But Tom also recognizes the playing field is changing. Since she took the reins of the shipping giant, her rallying cry has been “better not bigger” — a marked shift in approach for a company that touts itself on its website as “the world’s largest package delivery company.”
As part of that strategy, UPS is increasingly targeting areas with a minimal Amazon presence. They include logistics for small and medium-sized businesses without their own warehouses or shipping departments, business-to-business shipments, and the specialized world of delivering pharmaceuticals and other temperature-sensitive medical shipments.
Amazon, for its part, says it is scaling its shipping network “to bring even faster delivery to more customers.”
The competitive threat of “free” shipping
UPS has depended on the cash cow of package delivery for about a century.
The company began a messenger service in 1907 that became United Parcel Service in 1919. By 1975 it served every address in the U.S. and started expanding internationally.
For decades, UPS and FedEx virtually have had a shipping duopoly across the country, with UPS becoming better known for its extensive ground network and FedEx for its overnight shipping by air. The postal service also is a major player, but it focuses on slower delivery of mail.
UPS’s massive global shipping network has long stood as a bulwark against competitors, because of the cost of building the infrastructure to move so many packages around the world so quickly. DHL made a major U.S. push after being acquired by Germany’s mail monopoly Deutsche Post, promising that “yellow is the new brown” in an advertising campaign. By 2008, it had retreated, transferring air-parcel deliveries to UPS and slashing its ground network.
Amazon has proven a much tougher challenger because it is a giant online retailer.
Amazon’s retail strategy has succeeded in part by promoting two-day and next-day delivery, as well as free shipping.