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Karl Malone, move over for United Parcel Service
For those of you who don't follow NBA basketball, Karl Malone is often called "The Mailman" because he reliably delivers points and rebounds -- now for the Los Angeles Lakers after 18 years with the Utah Jazz. But this holiday season the real delivery comes from the UPS driver.
I'm a procrastinator, usually waiting until Christmas Eve to do my holiday shopping. But this year I turned over a new leaf; I'm shopping over the internet, and most, if not all, of my gifts will be delivered on time by UPS. Gifts from L'Occitane en Provence, White Flower Farms, and Lands' End have all been guaranteed delivery before Christmas thanks to their arrangements with UPS.
And it's not just Christmas gifts that. Through their UPS Stores -- formerly Mailboxes, Etc. -- you can ship packages and know they will arrive when promised. And thanks to a program called Supply Chain Solutions, companies such as Nike.com and Hewlett-Packard rely on UPS not only to deliver merchandise, but also manage their inventory and returns.
I recently went to Louisville, Ky. to see the UPS global air network, called Worldport. It's state-of-the-art and a far cry from UPS' beginnings in 1907, when it had 150 employees and seven leased planes. Now the company employs 360,000 people and owns 265 planes, including MD-11s, Airbus 300s and Boeing's 747, 757 and 767 models. Worldport, with 550 acres of UPS property with 300,000 square feet of hangar space, is the ninth-largest airline in the United States and the 11th-largest in the world, with 150 daily flights in and 150 daily flights out. Workers can load and unload each plane in 15 minutes, using a building 80 football fields long with 120 miles of conveyor belts. Most packages are touched only twice: Once when placed on the conveyor belt and again when removed for routing to its final destination.
UPS acts as a single source for synchronization of the flow of goods, funds and information for many well-known companies, from transportation and distribution to customs brokerage and design consulting. It's almost a one-stop shop for many businesses big or small. About 6 percent of this nation's gross domestic product travels through UPS. The company is the largest customer of our national rail system, which helps it cut a day off deliveries that used to be moved entirely by long-haul truck drivers.
UPS would be nothing if it weren't for its workforce. The company has a 90 percent retention rate during a time when many corporate employees are disgruntled and wishing they could find another job somewhere else. Many UPSers (as they call themselves) start as college students working part-time as package handlers, drivers or mechanics. Most decide to stay, enticed by job security, education assistance, and other employee benefits, not the least of which is stock ownership: UPS went public in 1999 at $50, and the majority of outstanding shares, trading at $73 and change, are held by the company's own workers. UPS stock has gained about 18 percent this year.
On the other hand, UPS' best-known corporate rival, Fedex, has seen its stock rise by almost twice as much over the same period -- as the success of UPS grows, so does the competition. Fedex (see last year's interview with CEO Fred Smith), already a dominant name in air delivery, appears to be taking share from UPS over the past year in the ground business. The Wall Street Journal in October reported that UPS in the latest quarter commanded 59.8 percent of the U.S. ground delivery market; if those estimates are correct, it would represent a significant decrease for a company which in recent years handled more than 70 percent.
And UPS has to compete against a pair of government-affiliated entities. Most investors probably know that the U.S. Postal Service remains the company's largest competitor in the United States, but keep in mind that UPS also has to deal with DHL, a subsidiary of Deutsche Post, which is controlled by Germany's postal authorities. In a bid to increase its puny share in the U.S. market, DHL recently bought Airborne.
But no one has the integrated network that UPS enjoys. The same driver delivers packages and makes pick-ups. And the company recently cut its time on ground deliveries.
Louisville certainly benefits. UPS is the largest employer in Kentucky, helping the local area to become a thriving community instead of a small, stagnant economy once based on tobacco. This year the company has given more than $7 million to local charities, over and above the 14,000 volunteer hours.
Of course, UPS can easily afford it. Over the last 12 months for which data is available, the company reported net income of $3.5 billion on revenue of $31.3 billion, representing year-over-year increases of 2 percent and 32.6 percent respectively. Its operating margin of 13.2 percent is more than double that of Fedex.
So while you wait up with cookies and milk, hoping for Santa to arrive, give a small round of applause to the men and women in brown that made sure your holiday gifts made it to their destination, and on time.
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