“UPS wants to do business where our customers are doing business,” Nick Basford, UPS Inc.’s vice president of global retail and ecommerce, tells Digital Commerce 360.
That’s the idea behind the UPS Digital Access Program that the company launched Tuesday. UPS is using the program to establish “preferred” relationships with ecommerce technology vendors that allows those vendors to offer retailers discounted UPS shipping rates, as well as other shipping and logistics services.
For example, UPS is working with Stamps.com, No. 106 in the Internet Retailer 2019 Top 500, to offer discounted shipping rates to the roughly 740,000 ecommerce customers that Stamps.com works with across its multiple brands that include ShipStation, ShippingEasy, ShipWorks and Endicia.
The rates are expected to be as much as 55% below UPS’ daily rates, including surcharge waivers. The deal with UPS is the first logistics relationship Stamps.com has struck since it ended its relationship with the U.S. Postal Service in February.
UPS wants its services to deepen its ties with small and midsized retailers that rely on vendors, such as Stamps.com and Shopify, that offer a broad suite of services, Basford says.
“The value proposition is that we can help vendors make shipping and logistics easier for their merchant customers,” he says. “Previously, the only route for internet merchants to work with us was to develop a direct relationship with us.” That created complexity and often increased costs because small and midsized merchants don’t have the leverage to negotiate discounted rates with UPS, he adds.
That approach works to distinguish UPS from its competition, which is namely FedEx Corp., but also includes the U.S. Postal Service and, increasingly, Amazon.com Inc., which is also a customer of UPS.
“Shipping and logistics is becoming an important part of how merchants differentiate themselves,” he says, noting that UPS Digital Access Program can help small and midsized merchants keep up with retailers such as Best Buy. The consumer electronics chain on Tuesday said that it will offer free next-day delivery for thousands of products purchased online with a $35 minimum purchase during the holiday season.
UPS’ third quarter results
News of the UPS Digital Access Program launch coincided with UPS reporting its third quarter results; its operating profit climbed to 12% of sales, up 1.5 percentage points on an adjusted basis, while its per-package delivery costs fell in the U.S. At the same time, UPS also announced the unexpected retirement of Jim Barber, its chief operating officer. That news stoked leadership uncertainty midway through the company’s pricey revamp to handle surging ecommerce.
Barber, who helped lead growth in Europe and Asia during his 35 years with UPS, will retire at the end of December. The departure, which left CEO David Abney, without a clear heir apparent, was a surprise to Basford. “It came as news to me,” he says.
The announcement was unexpected because UPS has made significant operational strides over the past few years, says Lee Klaskow, an analyst at Bloomberg Intelligence. “UPS has a history of promoting its COO to CEO and he was considered by most the likely successor to Abney,” he says.
The chief operating officer’s exit overshadowed UPS’s robust financial performance in the third quarter as Abney’s plan to push down the cost of residential deliveries showed new signs of success. For example, UPS has posted two straight quarters of improved financial performance. Savings from more automated sorting centers and new fuel-efficient planes began to kick in more strongly during the third quarter, and its domestic unit costs fell 2.5% on an adjusted basis.
“We’re finding we’re able to build the projects under budget,” Abney said. “We’re getting the same effect on our investments, but we’re not spending as much money. It’s a pretty good deal.”
UPS is also getting more business from a shift to one-day shipping led by Amazon, which has increased demand for next-day air service. Amazon is leaning more on UPS after FedEx didn’t renew U.S. delivery contracts with the online retailer.
Squeezing more profit out of e-commerce remains a challenge, however.
“We believe a significant amount of the ecommerce volume is relatively low margin business picked up from a competitor,” Helane Becker, an analyst at Cowen & Co., said in a note to clients. While U.S. consumer demand remains strong, “our concern remains more on the higher margin B2B segment which typically follows industrial production,” she said, referring to business-to-business parcels.
UPS’s adjusted earnings rose to $2.07 a share in the third quarter, slightly ahead of the $2.06 average of analyst estimates compiled by Bloomberg. Sales climbed 5% to $18.3 billion, just shy of analyst expectations. The courier reaffirmed its full-year earnings outlook of $7.45 to $7.75 a share.
Bloomberg contributed to this article.