Incorporated: 1907 as American Messenger Company
NAIC: 484122 General Freight Trucking, Long-Distance, Less Than Truckload; 492110 Couriers; 522220 Sales Financing
SIC: 4215 Courier Services Except by Air; 4513 Air Courier Services; 6153 Short-Term Business Credit
Known in the industry as "Big Brown," United Parcel Service, Inc. (UPS), is the world's largest package-delivery company. The Atlanta-based business delivered nearly seven billion items throughout more than 200 countries in 2006. In addition to its fleet of 101,000 vehicles, the company operates the world's eighth largest airline by virtue of its more than 600 company-owned and chartered aircraft. Its main hubs are in Louisville, Kentucky; Cologne, Germany; and the Philippines. UPS's embrace of technology has positioned it for a central position in the world of e-commerce. Numerous acquisitions expanded its capabilities in handling flows of "goods, funds, information." UPS even bought a bank, allowing it to finance small business transactions related to the merchandise it delivers.
Early 20th-Century Roots
UPS was founded in 1907 in Seattle, Washington, by 19-year-old Jim Casey as a six-bicycle messenger service. He set the future tone of the company by mandating that it be employee-owned. Casey delivered telegraph messages and hot lunches and sometimes took odd jobs to keep his struggling business going. By 1913 UPS consisted of seven motorcycles. With Casey's tacit approval, UPS drivers joined the International Brotherhood of Teamsters in 1916. In 1918 three Seattle department stores hired the service to deliver merchandise to purchasers on the day of the purchase. Department store deliveries remained the center of UPS's business until the late 1940s.
In 1929 UPS began air delivery through a new division, United Air Express, which put packages onto passenger planes. The Great Depression ended plans for an overnight air service, and UPS terminated United Air Express in 1931; the company did not resume air service until the 1950s. In the late 1940s the urban department stores that UPS serviced began following their clients to the new suburbs. More people owned cars and picked up their own parcels. UPS's revenue declined.
Casey decided to change direction and expand the common-carrier parcel business, picking up parcels from anyone and taking them to anyone else, charging a fixed rate per parcel. The company's initial customers were primarily industrial and commercial shippers, although the firm also served consumers. The company had offered common-carrier service in Los Angeles since 1922, and in 1953 UPS extended it to San Francisco, Chicago, and New York. UPS delivered any package meeting weight and size requirements to any location within 150 miles of these bases. After this initial expansion, UPS frequently appeared before the Interstate Commerce Commission (ICC) to expand its operating rights.
UPS scaled its operations to fit its market niche, refusing packages weighing more than 50 pounds or with a combined length and width of more than 108 inches, limitations that would increase in concert with the company's capabilities. Its average package weighed about ten pounds and was roughly the size of a briefcase, making sorting and carrying easy. UPS competed with scores of regional firms but most had not limited the size and weight of their packages. They ended up with the heavier packages, higher overheads, and lower volumes.
The Second Generation of Leadership
Casey resigned as chief executive officer in 1962 and was succeeded by George D. Smith. UPS more than doubled its sales and profits between 1964 and 1969, when the company made $31.9 million on sales of about $548 million. The company remained privately owned, its stock held by several hundred of its executives. UPS in 1969 served 31 states on the East and West Coasts. It had just gotten ICC approval to add nine midwestern states and soon got approval for three more states. Only the lightly populated states of Arizona, Alaska, Hawaii, Idaho, Montana, Nevada, and Utah were without UPS service. The firm kept a low profile, avoiding publicity, and refusing interviews of its chief executives. UPS officials believed only one parcel shipping company could exist in the United States, and it hoped that keeping a low profile would prevent anyone from copying its methods.
The firm's secrecy policy was possible because it was closely held. Its 3,700 stockholders (a number raised to 23,000 by 1991) were its own top and middle managers and their families. Stockholders wanting to divest would sell their stock back to the company. Because management owned UPS, the company could make long-range plans without the pressure for instant profits faced by many publicly owned firms. Most managers started as UPS drivers or sorters and came up through the ranks, creating great loyalty. The company's management structure was relatively informal, stressing partnership and the involvement of management at all levels.
In 1970 Congress considered a reform of the U.S. Postal Service that would allow it to subsidize its parcel post operations with profits from its first-class mail. This would allow it to lower prices and compete more directly with UPS. UPS hired a public relations firm and for the first time officially announced its earnings, trying to build a case that it was an integral part of the U.S. economy and that the postal reform would be disruptive. UPS handled 500 million packages in 1969, for 165,000 regular customers. The company claimed that 95 percent of all deliveries within 150 miles were delivered overnight. The company centered operations around a five-day-a-week cycle. Drivers made deliveries in the morning, made pickups in the afternoon, and returned to operations centers around 6 p.m. Their packages were immediately sorted and transferred for delivery.
UPS trucks were painted brown to avoid showing soil and were cleaned every night. Trucks were assigned to specific drivers, whom the company treated as future managers and owners. The company had 22,000 drivers in 1969, and most were kept on the same route to develop a relationship with customers. Some drivers, however, found UPS management inflexible, resulting in occasional local strikes.
In 1976 UPS tried to replace, gradually, all of its full-time employees who sorted and handled packages at warehouses with part-time workers. Teamsters locals in the South, Midwest, and West accepted the idea, but 17,000 UPS employees from Maine to South Carolina went on strike. The strike caused chaos for East Coast retailers as their suppliers were forced to send Christmas goods through the overburdened U.S. Postal Service. UPS eventually reached agreement with the Teamsters, but its labor relations continued to be spotty. Because management owned the business, it tended to drive its employees hard, and many drivers complained of the long hours and hard work. To maximize driver performance, the company kept records of the production of every driver and sorter and compared them to its performance projections. Drivers' routes were timed in great detail.
In 1976 UPS launched service in Germany with 120 delivery vans. It quickly ran into trouble because of cultural and language differences. UPS eventually adapted by hiring some German managers and accepting the German dislike of working overtime. George C. Lamb, Jr., succeeded Harold Oberkotter as UPS chairman in 1980.
Competition Intensifies
UPS continued to grow rapidly, aided by trucking deregulation in 1980. By 1980 UPS earned $189 million on revenues of $4 billion, shipping 1.5 billion packages. Federal Express Corporation (FedEx), however, which began operations in 1973, was siphoning off a growing amount of UPS's business. FedEx shipped packages overnight by air, and many businesses began shipping high-priority packages with FedEx. UPS had the resources to challenge FedEx, but it meant taking on significant debt, something the conservatively run UPS was reluctant to do. In 1981 it had only $7 million in long-term debt and a net worth of $750 million. To compete with FedEx, UPS bought nine used 727 airplanes in 1981 from Braniff Airlines for $28 million. It opened an air hub in Louisville, Kentucky, but was hesitant about directly challenging FedEx because of the huge cost of building an air fleet. It decided to stick with two-day delivery rather than overnight delivery, hoping that many businesses would be willing to let packages take an extra day if it meant savings of up to 70 percent. It called its two-day delivery Blue Label Air and spent $1 million in 1981 to promote it--a large sum for UPS, which had rarely advertised. In 1982 UPS ran its first television ads, trying to convince executives that two-day service was fast enough for most packages.
The recession of the early 1980s helped UPS because many companies shifted to smaller inventories, shipping smaller lots more frequently and demanding greater reliability. Package volume grew 6 percent in 1981. Because of the recession, the Teamsters accepted a contract in 1982 that limited wage increases to a cost-of-living adjustment, which then was diverted to pay the increased cost of medical benefits. When UPS then released information showing its net income rose 74 percent in 1981, labor relations worsened. Bitterness continued between UPS management and drivers as company profits swelled 48 percent to $490 million in 1983. UPS and the Teamsters secretly negotiated for two months in 1984 and reached a three-year agreement providing for bonuses and increased wages. The move averted a probable strike by 90,000 employees. Despite this labor tension, UPS's employee turnover remained remarkably low at 4 percent. Many workers were recruited as part-time employees while college students and were offered full-time positions after graduation.
In 1982 UPS decided to offer overnight air service, charging about half of FedEx's rate. By 1983 its second-day and next-day services were shipping a combined 140,000 packages a day. In 1982 UPS earned $332 million on $5.2 billion in sales. It had a fleet of more than 62,000 trucks. Mail-order firms and catalog houses were the fastest-growing part of UPS's business. Jack Rogers became UPS chairman in 1984.
Despite labor troubles, a Fortune survey found UPS's reputation the highest in its industry every year from 1984 to 1991. It was by far the most profitable U.S. transportation company, making more than $700 million in 1987 on revenue of $10 billion. FedEx, however, had 57 percent of the rapidly growing overnight package business; UPS had only 15 percent. FedEx was highly automated and used electronics to track packages en route and to perform other services. UPS still did most jobs manually, but was rapidly switching to the use of electronic scanners at its sorting centers and to computers on its trucks. UPS introduced technology methodically, buying a software firm and a computer design shop to create the necessary equipment. It then field-tested its new gear at a 35-car messenger service it owned in Los Angeles. It launched a $1.5 billion five-year computerization project, trying to create a system that tracked packages door-to-door, which FedEx was doing already. UPS's healthy river of cash flow enabled it to pay $1.8 billion for 110 aircraft in 1987. The purchase made it the tenth largest U.S. airline. The company launched its first wide-range television advertising campaign in 1988, spending $35 million to publicize the slogan, "We run the tightest ship in the shipping business." Despite these expenses, the company still had only $114 million in long-term debt and continued to finance large projects out of its cash flow.
By 1988 UPS's ground service was growing by 7 to 8 percent per year, and air service was growing by 30 percent per year. UPS handled 2.3 billion packages per year, compared with 1.4 billion for the U.S. Postal Service. The 300-plane fleet of the UPS overnight service handled 600,000 parcels and documents per day, making $350 million on $2.2 billion in sales in 1988. UPS continued building an overseas air network, but in West Germany, where it had 6,000 employees, it delivered only on the ground. The company shipped eight million packages overseas in 1988, losing $20 million in the process. UPS bought its Italian partner, Alimondo, in 1988, hoping to use it and its German base to expand through Europe. The company also bought nine small European courier companies to expand air service. Its overseas acquisitions cost UPS less than $100 million. UPS and rival FedEx both were losing money on overseas operations, but UPS had an advantage: FedEx could not match its $6.5 billion in assets and $480 million in cash with minimal debt. UPS hoped this would give it greater staying power as the two companies struggled to build a global delivery network. Meanwhile, UPS slowly won some FedEx customers by giving volume discounts, which it previously had refused to do. The overseas shipping war escalated as FedEx bought Tiger International, Inc., a major international shipper that UPS used for some of its foreign deliveries.
Invigorating New Leadership
Kent C. Nelson succeeded Jack Rogers as chairman and CEO in 1989. Nicknamed "Oz" for 1940s-era band leader Ozzie Nelson, the 52-year-old had spent his entire working life at UPS, starting with the company only two days after graduating from college. The new leader undertook a gradual, but complete transformation of UPS that extended from its innermost workings to its public image.
Challenged by competitors large and small, UPS launched a plethora of new services in the early 1990s. These ranged from timed and same-day deliveries to less expensive two- and three-day services. The company's Worldwide Logistics subsidiary offered clients everything from inventory management to warehousing and, of course, delivery. Powerful and costly technical systems, often developed internally by a 4,000-member staff, backed up these expanded operations. UPS's DIAD (delivery information acquisition device), for example, combined a bar-code scanner, electronic signature capture, and cellular tracking network in a single handheld tool. By 1992, the corporation was investing more money in computers than in ubiquitous brown vehicles. These internal changes reflected the company's traditional focus on super-efficiency as well as its newfound emphasis on customer satisfaction.
In contrast to its secretive early years, the UPS of the 1990s was a bold global marketer. The company embarked on the largest advertising campaign in its history in 1996, spending an estimated $100 million in conjunction with its sponsorship of the Centennial Olympics held in Atlanta, Georgia (which, not coincidentally, had become UPS's headquarters in 1991). UPS hoped that the worldwide recognition enjoyed by the Olympic rings would rub off on its brown trucks, which were not well known outside the United States.
That recognition was vital to the success of UPS's international operations, which continued to lose money into the mid-1990s. By 1995, in fact, losses on the company's European venture totaled nearly $1 billion. Nevertheless, backed by its patient and confident employee/stockholders and a hefty bank account, UPS was able to wait out publicly held FedEx, which had limited its European service to intercontinental deliveries by mid-decade. In stark contrast, UPS had expanded its international network to include 200 countries and territories worldwide. Undaunted by its massive losses, UPS announced plans to invest more than $1 billion in its European operations from 1995 to 2000, and it infused another $130 million into its Asian operations. The company hoped to profit on its piece of the $25 billion European parcel post market by the end of the century.
This global push fueled a 69 percent increase in sales over the course of Kent Nelson's first six years at the helm of UPS. At the same time, however, it played a significant role in the reduction of the company's overall profit margin from 8 percent in 1987 to 4.8 percent in 1995. As the company approached its ninetieth anniversary in 1997, it looked forward to reaping the rewards of its global investment.
A Decade of Transformation: 1997-2007
UPS's ninetieth anniversary year was notable for labor unrest. In spite of its much vaunted human resources culture and employee ownership, UPS endured its first nationwide strike in 1997. The 15-day walkout by the Teamsters, protesting stagnant wages and working conditions, cost UPS an estimated $200 million to $700 million in lost business and goodwill. The pilots' union then capitalized on the moment by threatening a disruption in order to secure increases to its own members' salaries.
The impact on corporate profits proved relatively short-lived, and Big Brown was soon raking in big green again. While revenues stalled at $24.5 billion in 1997, they then began a steady climb to nearly $30 billion by 2000. Net profit was less consistent, but reached $2.9 billion in 2000. By this time, there were 359,000 employees.
"Goods, Funds, Information"
While there were many doubts about in the Internet bubble, shipping companies seemed poised to develop from any growth in e-commerce. In this environment, UPS went public on November 10, 1999, gaining funds for acquisitions. The offering of about 9 percent of shares raised $5.5 billion and valued the company at more than $60 billion. UPS was undergoing a transformation from a simple shipper to a facilitator of global commerce, insinuating itself into the three flows that made up trade: "goods, funds, information."
UPS dipped into the "funds" part of the equation by creating UPS Capital Corporation in 1998. Three years later, it acquired First International Bank for $78 million in stock. The financial aspect brought UPS into such helpful activities as collecting payments and providing letters of credit and small business loans.
The company's logistics support business, or supply chain services, was another area of particular attention. A buying spree launched in the late 1990s built this up through the purchase of 20 companies that expand its capabilities as well as its hauling capacity. Fritz Companies, added in 2001 in a $437 million stock swap, was one of the bigger acquisitions. Fritz provided a global freight forwarding service, allowing UPS to ship a wide range of freight to all parts of the world.
The 2002 acquisition of Challenge Air Cargo Inc. boosted shipping capabilities in South America. However, the company felt Europe and Asia showed more promise for growth. The latter offered plenty of potential, but the sparse transportation network there favored air service. After operating a base in Taiwan, in 2003 UPS opened a new intra-Asia hub at Clark Air Force Base in the Philippines. This was expanded within a couple of years.
UPS continued to build its freight capabilities through acquisitions. It bought heavy air freight specialist Menlo Worldwide Forwarding Inc. at the end of 2004. UPS closed Menlo's Dayton, Ohio, facility in 2006, integrating the operations with other UPS facilities. The 2005 acquisition of Overnite Corporation added less-than-truckload ground freight capacity. Overnite was soon rebranded UPS Freight.
New Spin on an Old Brand
In early 2001, UPS acquired Mail Boxes Etc. from U.S. Office Products Co. for $191 million. This gave the shipper a retail presence through a chain of more than 4,000 units that soon began doing business as "The UPS Store." UPS aimed not only to make its services more accessible to residential and small business customers, but to increase overall brand awareness.
In 2002 its priciest ad campaign to date asked "What can Brown do for you?" The next year the company began referring to itself by its initials instead of the full "United Parcel Service." It also modernized the 40-year-old shield logo, doing away with the strings and bow that were a hindrance to automated sorting machinery anyway. The old design did not apply to the new UPS, which was involved in much more than shipping. For example, the UPS Supply Chain Solutions could provide merchants with call center or warehousing support.
2007 Centennial
Total revenues climbed from $31.3 billion in 2002 to $47.6 billion in 2006. Net income grew less quickly, remaining at the $3 billion level from 2002 to 2004 but reaching $4.2 billion in 2006. The company was on its way to reaching the $50 billion figure by its 100th anniversary, as the headcount approached a staggering 450,000 employees.
In its first 100 years, the company had only had nine chief executives. James P. Kelly became the company's chairman and CEO in 1997. He was succeeded by former Vice-Chairman Michael Eskew in 2002.
The still-growing giant had seen tremendous change over the previous decade in particular. Not only had the company entered a wide array of new ventures, but it had substantially reworked its financial underpinnings. Privately owned since its first days, Big Brown was trading shares on the Big Board, and had taken on billions in debt.
Principal Subsidiaries
United Parcel Service of America, Inc.; United Parcel Service General Services Co.; United Parcel Service Co.; UPS Worldwide Forwarding, Inc.; United Parcel Service, Inc. (Ohio); United Parcel Service, Inc. (New York); UPICO Corporation; UPS Supply Chain Solutions, Inc.; UPS International, Inc.; United Parcel Service Deutschland Inc. (USA); Overnite Corporation; UPS Capital Corporation.
Principal Operating Units
The UPS Store; UPS Air Cargo; UPS Capital; UPS Consulting; UPS Freight; UPS Logistics Technologies; UPS Mail Innovations; UPS Professional Services; UPS Supply Chain Solutions.
Principal Competitors
FedEx Corporation; United States Postal Service; Deutsche Post AG.
Further Reading
Barron, Kelly, "Logistics in Brown," Forbes, January 10, 2000, p. 78.
"Behind the UPS Mystique: Puritanism and Productivity," Business Week, June 6, 1983.
Birger, Jon, "A Big Question for Big Brown: How Can UPS Grow When It Operates Almost Everywhere?" Money, June 1, 2002, p. 49.
Bonney, Joseph, "UPS Bets a Billion," American Shipper, January 1993, p. 26.
Brewster, Mike, and Frederick Dalzell, Driving Change: The UPS Approach to Business, New York: Hyperion, 2007.
Day, Charles R., Jr., "Shape Up and Ship Out," Industry Week, February 6, 1995, pp. 14, 17-20.
Decler, K., et al., "United Parcel Service and the Management of Change," Business Week, May 21, 2001.
"Delivering in Tough Times: Under CEO Mike Eskew, UPS, the Venerable Package Deliverer, Goes Global and High Tech," Chief Executive (U.S.), March 2003, p. 32.
Donnelly, Sally B., and Greg Fulton, "Out of the Box: UPS Still Delivers Packages, of Course, but It's Also Helping Firms Like Nike and Toshiba Assemble, Store and Repair Products. Who Knew?" Time, November 8, 2004, p. A2.
Duffy, Caroline A., "UPS Toes the Line with Its Package-Tracking Technologies," PC Week, June 28, 1993, p. 211.
Gillam, Carey, "Delivering the Dream," Sales & Marketing Management, June 1996, pp. 74-78.
Gillespie, Andrew, "UPS," Business Review (U.K.), February 2002, p. 5.
Gilpin, Kenneth N., "U.P.S. Initial Public Offering Raises $5.47 Billion," New York Times, November 10, 1999.
Greenwald, John, "Hauling UPS's Freight," Time, January 29, 1996, p. 59.
Harrison, Joan, "Making It Fit: Culture Clash and Other Issues Plague FedEx and UPS Years After Their Respective Jumps into Retail," Mergers & Acquisitions: The Dealmaker's Journal, October 1, 2007.
Hosea, Maeve, "Case Study--UPS: Brand Deliverance," Brand Strategy, November 6, 2006, p. 20.
"James E. Casey," Puget Sound Business Journal, April 2, 1993, p. 2A.
LaGesse, David, "Big Brown," U.S. News & World Report, July 31, 2006, p. 52.
Lyne, Jack, "UPS COO Jim Kelly: Bold Days for 'Big Brown,'" Site Selection, August 1995, pp. 53-54.
Madden, Stephen J., "Big Changes at Big Brown," Fortune, January 18, 1988.
Minahan, Tim, "UPS Strike Makes Shippers More Cautious, Strategic," Purchasing, October 23, 1997, p. 105.
Niemann, Greg, Big Brown: The Untold Story of UPS, San Francisco: Jossey-Bass, 2007.
"The Quiet Giant of Shipping," Forbes, January 15, 1970.
Walker, Karen, "Brown Is Beautiful," Airline Business, November 1997, p. 46.
"Why United Parcel Admits Its Size," Business Week, July 18, 1970.
"The Wizard Is Oz," Chief Executive (U.S.), March 1994, pp. 40-43.
— Scott M. Lewis; Updated by April Dougal Gasbarre, Frederick C. Ingram