United Parcel Service, Inc. Business Information, Profile, and History

Company Perspectives:

OUR MISSION--What we seek to achieve:

We fulfill our promise to our constituents throughout the world in the following ways: We serve the evolving distribution, logistics, and commerce needs of our customers worldwide, offering excellence and value in all we do. We sustain a financially strong company, with broad employee ownership, that provides a long-term competitive return to our shareowners. We strive to be a responsible and well-regarded employer by providing our people with an impartial, rewarding, and cooperative environment with the opportunity for advancement. We build our legacy as a caring and responsible corporate citizen through the conduct of our people and company in the communities we serve.

History of United Parcel Service, Inc.

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 approximately 3.4 billion items throughout more than 200 countries and territories in 2003. In addition to its fleet of 88,000 vehicles, the company operates the ninth largest airline in North America by virtue of its nearly 600 company-owned and chartered aircraft. Although UPS's global reach has been steadily expanding, it is the firm's U.S. operations that are its most impressive asset. Its door-to-door delivery system reaches every residential and business address in the country, and UPS estimates that its system carries goods that are valued at more than 6 percent of the U.S. gross domestic product. More than 83 percent of UPS's revenues is generated in the United States, where the firm has a market share of about 60 percent in ground shipping and about 35 percent in air shipping. Although UPS sold a 10 percent stake in the company to the public in November 1999 through newly created Class B shares, the Class A shares, which control 99 percent of the voting rights in the company, remain in private hands, mostly those of employees and retirees.

Roots in the Early 20th Century

UPS was founded in 1907 in Seattle, Washington, by 19-year-old Jim Casey as a six-bicycle messenger service called American Messenger Company. 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. In 1913 Casey merged his company with Evert McCabe's rival firm, Motorcycle Delivery Company, creating Merchants Parcel Delivery. The "fleet" at this point consisted of a few motorcycles and one Model T Ford. In 1915, by which time the fleet had expanded to four cars and five motorcycles, the company began painting its delivery vehicles brown. It was Charlie Soderstrom, one of Casey's partners, who urged that brown be adopted, noting that the color hid dirt well--a fact that had earlier led the Pullman company to paint its railroad cars that same hue.

With Casey's tacit approval, company 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 the firm's business until the late 1940s. In 1919, meantime, Merchants Parcel Delivery made its first move outside its home market, buying a delivery firm in Oakland, California. Because there was a similarly named firm already operating in San Francisco, another name change was in order. The moniker chosen was United Parcel Service. During the 1920s, UPS expanded to Los Angeles, San Francisco, San Diego, and Portland, Oregon. An expansion drive on the East Coast began in 1930 with the start of delivery service in New York City. UPS moved its headquarters to New York that same year.

In 1929 UPS began air delivery through a new division, United Air Express, which put packages on to 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 1953, when UPS Air was launched as a two-day service connecting major cities on the East and West Coasts. 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 serviced 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.

A New Generation of Leadership for the 1960s

Casey resigned as chief executive officer in 1962, when UPS achieved annual revenues of about $141 million. He 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 sell sold 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 United States 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, which were cleaned every night, were assigned to specific drivers, who 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 1975, meantime, UPS achieved a long coveted goal when it became the first package delivery firm to serve every address in the continental United States. That same year, the company expanded outside the country for the first time, launching delivery service in Ontario, Canada, and also relocated its headquarters to Connecticut. In 1976 UPS launched service in West 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.

Intensifying Competition in the 1980s

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-ever 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 by 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 (UPS Next Day Air), 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. In 1985 UPS began offering international air service between the United States and six European countries.

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.

Invigorated Through New Leadership in the 1990s

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 (formed in 1993) 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 barcode 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 1991, meanwhile, UPS relocated its corporate headquarters from Greenwich, Connecticut, to Atlanta, Georgia. Another important development during this period came in 1995, when the corporation introduced a new stock purchase program that was open to all UPS employees--both full- and part-time; previously, only management was given the opportunity to buy the stock.

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 its new base of Atlanta. 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 assault totaled nearly $1 billion. But 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 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.

In January 1997 James P. Kelly succeeded Nelson as chairman and CEO. Kelly had worked his way up through the ranks, having joined UPS in 1964 as a package car driver. His first year at the company turned into a rough one as the 190,000 Teamsters employees at UPS went on strike for 15 days in August before agreeing to a new five-year pact. In addition to wage increases, the new agreement called for the creation of 10,000 new full-time jobs and the shifting of 10,000 part-time workers into full-time jobs as such jobs became available through attrition and growth. The strike cost UPS $700 million in lost revenue, resulting in less than 1 percent sales growth for the year and a decline in profits to $909 million from the 1996 figure of $1.15 billion.

UPS shook off any lingering effects from the strike by 1998 when its domestic shipping revenues jumped 9.4 percent, reaching $20.65 billion. UPS continued to reap benefits from the ever-growing e-commerce section, which was fueling demand for shipping services. During the year, the company rolled out a money-back guarantee for on-time delivery for all of its ground business-to-business shipments. Other good news came in the form of the first-ever annual profits for the company's international operations, which now generated nearly 13 percent of overall revenues.

In 1999 company executives determined that UPS needed the added flexibility of publicly traded stock in order to pursue some larger acquisition targets. Thus in November, UPS completed what was then the largest initial public offering (IPO) ever conducted in the United States. The company raised $5.47 billion by selling 109.4 million shares of newly created Class B shares at $50 per share on the New York Stock Exchange. The Class A shares, which controlled 99 percent of the voting rights at the company, remained in the private hands of employees and retirees. The newly public company (whose official name was shortened from United Parcel Service of America Inc. to United Parcel Service, Inc.) was immediately confronted with a new challenge from FedEx. The arch-rival had bought a truck-based shipping company earlier in the year and then in 2000 launched two new truck-based delivery services: FexEx Ground, specializing in business-to-business deliveries, and FedEx Home Delivery, concentrating on deliveries to residences.

Acquisitions at Center Stage in the Early 2000s

UPS's post-IPO acquisition spree began with the 2000 purchase of Challenge Air Cargo, a Miami-based freight carrier operating in Latin America. That same year, the firm gained the right to fly directly to China from the United States; the following April, UPS began making six weekly freight flights to Shanghai and Beijing. Also in April 2001, UPS spent about $185 million in cash for Mail Boxes Etc., a U.S. franchise-based chain of stores providing packing, shipping, and mail services. There were more than 4,300 Mail Boxes Etc. locations throughout the United States as well as overseas, and the chain was expected to expand UPS's services to small and home-based businesses and to consumers as well. In May 2001, as part of the company's aggressive move into global supply-chain management, UPS acquired Fritz Companies, Inc. in a $456 million stock swap. Fritz, which specialized in freight forwarding, customs brokering, and logistics, was subsequently renamed UPS Freight Services. Then in late 2002 UPS Freight Services was merged with UPS Logistics Group to form UPS Supply Chain Solutions, a streamlined unit operating out of 120 countries and offering freight forwarding, international trade management, logistics and distribution, and other specialized supply-chain services.

At the beginning of 2002 Michael L. Eskew succeeded the retiring Kelly as chairman and CEO. Eskew had joined the company in 1972 as an industrial engineering manager and had risen to become executive vice-president by 1999. Also in 2002, UPS extended its money-back guarantee for on-time ground-delivered packages to include residential shipments within the continental United States, and it also launched an advertising campaign featuring a new slogan, "What can Brown do for you?"

In early 2003 most of the 3,300 Mail Boxes Etc. outlets in the United States began operating under a new name, the UPS Store, in the hope of capitalizing on the well-known UPS brand. Simultaneously, the corporation revamped its logo for the first time since 1961. The new logo kept the shield that had been part of the logo since 1919, though the shield was modernized with a more three-dimensional look. The previous logo's bow-tied package was removed, however, as the company wanted to emphasize that it was involved in more than just shipping. Likewise, the phrase "Worldwide Delivery Service," which had appeared on its 88,000-vehicle fleet, was replaced with "Synchronizing the World of Commerce," thereby reflecting UPS's expanded activities in the wider supply-chain industry. Brown remained the company's principal color. Also during 2003, UPS attempted to fend off the inroads that FedEx and other competitors had made into its core domestic ground shipping business by shaving at least one day off the amount of time it needed to ship items between more than half of the largest U.S. metropolitan areas.

Despite the implosion of numerous e-commerce companies, and the package deliveries that died along with the companies, UPS managed to continue to grow during the recessionary early 2000s. Total revenues reached $33.49 billion by 2003, with faster growth in international package deliveries and nonpackage operations (including the extended supply-chain activities and the UPS Store) making up for shortfalls in the U.S. package delivery sector. As it neared its 100th anniversary in 2007, UPS remained one of the most respected companies in its industry and a formidable competitor. One concern going forward was the aggressive move of Deutsche Post AG, the German postal agency, into the U.S. cargo market through its acquisitions of DHL Worldwide Express and Airborne Inc.

Principal Subsidiaries: United Parcel Service of America, Inc.; United Parcel Service General Services Co.; United Parcel Service Co.; UPS Worldwide Forwarding, Inc.; UPICO Corporation; UPS Capital Corporation; UPS Supply Chain Solutions, Inc.; UPS Re Ltd. (Bermuda); UPS International, Inc.; United Parcel Service Deutschland Inc. (Germany); C.C. & E. I, L.L.C.

Principal Competitors: United States Postal Service; Federal Express Corporation (FedEx); Deutsche Post AG; DHL Worldwide Express; TPG N.V.

Chronology

• Key Dates:
• 1907: Jim Casey founds a six-bicycle messenger service called American Messenger Company in Seattle, Washington.
• 1913: American Messenger merges with Motorcycle Delivery Company, creating Merchants Parcel Delivery, which has a "fleet" of a few motorcycles and one Model T Ford.
• 1915: The company begins painting its delivery vehicles brown.
• 1916: The company drivers join the International Brotherhood of Teamsters.
• 1918: Three Seattle department stores hire the firm to deliver merchandise to their customers.
• 1919: After buying a delivery firm in Oakland, California, the company changes its name to United Parcel Service (UPS).
• 1930: Operations are expanded to New York City, which also becomes the location of the company's new headquarters.
• 1953: UPS begins a steady expansion of its common-carrier parcel business, through which it picks up parcels from anyone and takes them to anyone else; UPS Air is launched as a two-day air express service connecting major cities on the East and West Coasts.
• 1962: Casey ends his long reign as CEO.
• 1975: UPS becomes the first package delivery firm to serve every address in the continental United States; the first international expansion begins with the launch of delivery service in Ontario, Canada; the company moves its headquarters to Connecticut.
• 1976: UPS enters the European market through the start-up of a delivery service in West Germany.
• 1982: UPS Next Day Air, an overnight air delivery service, debuts.
• 1985: The company begins offering international air service between the United States and Europe.
• 1991: Headquarters are relocated to Atlanta.
• 1999: The company raises $5.47 billion through an initial public offering; the official name of the company is changed from United Parcel Service of America Inc. to United Parcel Service, Inc.
• 2001: UPS acquires the Mail Boxes Etc. chain of 4,300 franchised shipping and mail services stores and Fritz Companies, Inc., which specializes in freight forwarding, customs brokering, and logistics.
• 2002: The company's supply-chain management operations are merged to form a new unit, UPS Supply Chain Solutions.
• 2003: Most of the U.S. locations of Mail Boxes Etc. change their names to the UPS Store.