UPS Credits Supply Chain Services for Growth

Buoyed by a recent string of acquisitions, the worldwide shipper takes further steps into new areas ranging from supply chain services to the Chinese market.

New logistics technologies, supply chain services, an integrated shipping network, and strong branding are the key drivers behind the financial growth gained by United Parcel Service over the past year, according to Scott Davis, the companys chief financial officer.

Also within the past 12 months, UPS has made two acquisitions in the supply chain arena Davis said, during a recent Webcast by UPS.

In keeping with these purchases of Menlo Worldwide Forwarding and Overnite Transportation, UPS has just renamed one of its operating divisions Supply Chain and Freight, said Teresa Finley, vice president of investor relations, also during the call with analysts.

UPS is also paying particular attention right now to the midrange market, according to Davis.

"[Customers] see the change and they tell us, UPS is more responsive [now]. Technology is a differentiator," said the chief financial officer.

In other recent acquisitions, UPS has expanded its integrated air and rail operations in Europe with buyouts of UK-based Lynx Express Ltd. and an Italian-based logistics firm. In addition, this past December, UPS purchased its long-time partner Sinotrans, the largest freight and logistics firm in China.

By the end of this quarter, operations in all of Sinotrans 23 metro regions will be transferred to UPS, Davis said.

Truck drivers in China will be outfitted with the same Dyad 4 handhelds as their colleagues in the U.S.

The handhelds give the drivers "up-to-date information about end-to-end package delivery, at their fingertips," Davis told the analysts.

UPS also nailed down some big customer wins in China at the end of the third quarter, according to the UPS executive.

UPS initial operations in China revolve mainly around providing tracking and delivery services to multinational customers sending shipments to other countries. But "intra China" shipments represent a future opportunity, he said.

Some customers have also voiced interest in contracting UPS for logistical and supply chain services, including vehicle repair.

Elsewhere in the world, the company is now outsourcing supply chain services ranging from supplier management and customer brokerage services to network management.

Meanwhile, UPS is already starting to capitalize on cross-selling opportunities with Overnite around supply chain services.

UPS Menlo property, on the other hand, was losing revenue prior to the buyout. In mid-2006, however, Menlos fortunes will turn around dramatically, when the business unit opens a new air freight facility in California, according to Davis.

In terms of other technologies, UPS recently upgraded the shipping and processing capabilities for Trade Direct, a service that consolidates multiple packages into a single shipment, and then deconsolidates them when packages arrive at their destinations.

"The upgrade came just as retailers [were ramping up for] the holidays," according to Davis. Customers, he said, "are excited about our new LTL (less than truckload) capabilities."

The improvements have centered on better package flow. Originally, UPS planned to have trained 65 percent of its drivers in the new technology by the end of this year.

But now, that number looks more likely to land in the vicinity of 62 percent. A couple of UPS facilities in the Gulf Region closed down temporarily due to the impact of Hurricane Katrina. A few facilities in other locations have faced "construction issues," he said.

/zimages/2/28571.gifUPS improves its online shipment tracking. Click here to read more.

It is UPS small package delivery service, though, that serves as the "financial engine" for the companys expansion into new geographic and vertical markets, according to Davis.

In UPS financial results for the most recent quarter, ended Sept. 30, consolidated revenue jumped to $10.55 billion, a 17.9 percent increase over the same quarter the previous year.

U.S. domestic package revenue grew 6.9 percent to $7.03 billion, while international revenue climbed 14.5 percent to $1.92 billion.

The new Supply Chain and Freight segment earned $1.6 billion during the quarter, according to results released late last week. "[But] were not standing still. Were constantly improving in all four areas," according to UPS Davis.

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