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Great Expectations

Doing business today starts with acknowledging a new paradigm: Customers, not companies, have all the power.

In our society, the power of information technology enables the pursuit of instant gratification. This tech-fueled, customer-in-control paradigm shift has disrupted many industries, although perhaps none more so than logistics.

We’re all consumers, and we want what we want, where we want it, how we want it and when we want it.

That’s low-cost or even so-called “free” shipping. That’s delivery as fast as the next few hours. That’s the expectation that the product will arrive in perfect condition every time. And that’s the ability to return something if it’s not just right.

R.H. Macy, the founder of Macy’s®, captured today’s demands well over a century ago, when he advised, “Be everywhere, do everything and never fail to astonish the customer.”

The challenge for logistics providers like UPS® is meeting all those demands — and doing so while maintaining appropriate shareholder returns.

Some context: Our U.S. domestic business revenue has averaged about 4 percent annual growth since 2014, yet it has experienced margin compression, principally driven by e-commerce. In 2014, the operating margins for the business were 11.8 percent, but in 2017, margins for the U.S. domestic business were 10.6 percent.

During the next five years, the international market for logistics is projected to grow at roughly double the rate of global GDP. Much of that growth is attributable to consumer and business demand tied to e-commerce.

The takeaway: There is tremendous growth potential for UPS, but the company must take the necessary steps to reverse this trend and make residential deliveries less costly. This will in turn enhance the company’s ability to invest in the facilities, fleets and products to drive growth and improve share-owner returns.

From managing the exponential growth of e-commerce to maintaining a competitive service portfolio and keeping a healthy eye on new entrants and potential disruptors, the logistics business has never been more demanding.

Like many of today’s most agile companies, UPS has been preparing for a new age of consumer choice, convenience and control. It’s the consumer’s world, and we’re now playing by their rules.

To meet those demands, UPS has become a trusted problem solver, helping retailers offer true omni-channel options to their customers.

That means giving shoppers the ability to ship directly from a store or ship an item from another store if it is out of stock — it also means taking the complications out of returns.

For example, we now have roughly 47 million UPS My Choice® members who take advantage of the service for delivery alerts via email or text, authorizing online the release of an item, directing where to leave a package or even redirecting the package to a neighbor or UPS Access Point™ location.

Another agile response to rising consumer expectations is UPS SurePost®, an economy, residential, ground product. This service combines the consistency and reliability of the UPS Ground network for cost-effective final delivery, which the U.S. Postal Service can complete when necessary.

UPS continues to gain additional package volume because it offers this low-cost option to shippers who demand it. If offered a lightweight residential service that meets their needs, e-commerce customers often give a majority of their volume to one carrier. The add-on volume that comes from UPS SurePost shipments includes UPS commercial ground, residential ground, air, freight and international packages.

UPS SurePost has helped UPS grow its business and retain high-paying, service-provider jobs by giving added flexibility to meet customer needs, and we can only remain an industry leader if we stay responsive to our customers and have effective ways to combat competitive threats.

In addition to creating innovative customer solutions like UPS My Choice, UPS Access Points and UPS SurePost, the company also needs innovative methods and schedules to create greater flexibility throughout our operations. That’s why we’re seeking a labor contract that maintains or enhances flexibility so the company can effectively compete — today and tomorrow.

Our customers expect that UPS will deliver whenever and wherever needed — with more options than offered by our competitors. When we meet our customers’ needs, they trust us to deliver more of their packages, and more packages mean more jobs.

Adapting to the disruptions of consumer choice is very much a work in progress.

But UPS is investing and leaning in to the challenge — and about half of our deliveries are now Business-to-Consumer.

Digital commerce is radically changing the consumer marketplace, and UPS can only remain an industry leader if we modernize and embrace new tools.

Taking a page out of R.H. Macy’s playbook, we’ll do everything possible to be everywhere, do everything and astonish the customer.

May 18, 2018