UPS Sees Wider Margins as E-Tailing Nears Business Volume

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Michael Nagle/Bloomberg

United Parcel Service Inc. sees the boom in online retailing as an opportunity, not a threat, as the delivery company devises new tactics to make e-commerce more profitable, Chief Executive Officer David Abney said.

UPS is exploring methods such as consolidating packages from multiple retailers and delivering them to the same home at once, and dropping off goods at corner stores after a failed home attempt. Atlanta-based UPS is bracing itself for e-commerce shipments that it projects will grow four times faster than the U.S. economy, Chief Financial Officer Kurt Kuehn said yesterday at an investor conference.

The company sees opportunity in e-commerce even though profit margins are lower for residential deliveries than for commercial drop-offs. While business-to-business shipments once accounted for 75% of UPS’s volume, Abney said deliveries to homes will equal those to businesses by 2019.

“This past quarter, the great majority of our growth was driven by e-commerce, and our margins grew by 30 basis points,” Abney said Nov. 13.

To save costs, UPS is testing a program to consolidate shipments from multiple retailers and deliver them all at once to a home. UPS will give retailers a price break if they agree to delay delivery for a day or two to catch up with all the orders.

Such a system probably will work better for products such as dog food and diapers than for high-tech gadgets, which are eagerly awaited by consumers, Kuehn said.

“The vast majority of our shipments aren’t all that urgent,” Kuehn said.

Other ideas include unstaffed delivery sites being tested at nine locations in Chicago, the company said, as well as expanding its Access Point service, which drops packages at designated pickup points like UPS shops or a convenience store. With the customer’s permission, Access Point also allows a driver to drop a package at the designated alternate location if a person isn’t home when a delivery is made, instead of having to return to the residence the next day.