UPS Inc. (NYSE: UPS) has reduced transit times by one business day on millions of parcels moving under its core U.S. ground delivery business, one of the most consequential service improvements the transport and logistics giant has implemented in years.
The initiative, Fastest Ground Ever, was launched during the first week of November. All lengths of haul are affected by the change. However, 63% of its ZIP code-to ZIP code lane improvements have been in what the company characterizes as “one- to three-day transit lanes,” according to a UPS spokesman. For millions of commercial and residential shipments, that means an original three-business-day transit time will be compressed to two, and two business days down to one. UPS moved 16.8 million packages each day through its ground network during the third quarter, according to company data.
The specific improvements will vary depending on the origin market. For example, in UPS’ home base of Atlanta, also home to the second-largest facility in its ground network, the improvements will be focused west of the Mississippi, according to a model of a UPS network grid. Big markets like Phoenix; Las Vegas; Seattle; Portland, Oregon; Oklahoma City; and Salt Lake City will experience service improvements, according to internal company documents. Ground shipments bound for Seattle and Portland will be delivered in four business days instead of five. Parcels bound for Salt Lake City and Oklahoma City will be delivered in three business days instead of four.
UPS CEO Carol Tomé had telegraphed the changes during her first two analyst calls after taking the position on June 1. To expedite the program’s progress, Tomé said she had authorized the pull-forward of $750 million in capital expenditures originally slated for 2021. At the time, she forecast that by October, UPS would be delivering in three days or less to 90% of the U.S. population.
In her second call, at the end of October, Tomé said the program had been completed eight months ahead of schedule. UPS’ new transit times “will be at parity or better than the competition” in 20 of the 25 most populated U.S. markets, she said on the call. By “competition,” Tomé was referring to archrival FedEx Corp. (NYSE: FDX), which for years has touted faster ground transit times than UPS on as many as 30% of ZIP-to-ZIP lane pairing comparisons.
On both calls, Tomé highlighted the new initiative’s benefits to small to midsize businesses (SMB), a high-margin customer segment that UPS aggressively markets to. SMB customers have told UPS that speed to market is their highest priority, Tomé has said.
A catalyst in completing the project was the launch of Sunday nationwide ground service on Jan. 1. The now seven-day-a-week operation generates additional revenue for UPS, and improves its network fluidity that enables the company to optimize its time-in-transit capabilities. UPS is the only U.S. delivery carrier to provide commercial and residential services on Saturdays as a general offering.
UPS, as well as FedEx, seek better transit times not only to satisfy their customers but to ease their capacity constraints, said Brian Byrd, senior vice president-operations at consultancy Transportation Impact Inc. “The faster a package can move through a network, the more capacity you can add to that network,” Byrd said. UPS said it will have added more than 5 million square feet of capacity this year at 20 new or remodeled facilities across its global system.
UPS has also invested billions of dollars in technology to improve network and facility operations, which leads to faster and more accurate deliveries, analysts have said. Most UPS ground volumes today move through some type of highly automated hub or facility, which would be a tailwind to attaining improved transit times.
Rob Martinez, founder and co-CEO of Shipware LLC, a parcel consultancy, said UPS has long recognized its deficiencies in ground time-in-transit performance, especially when compared with FedEx Ground, FedEx’s Ground unit. Martinez also said that much of these improvements can be traced to the influence of Amazon.com Inc., UPS’ largest customer. Amazon has prodded UPS to improve its transit time performance so Amazon can meet its customers’ demanding delivery expectations, Martinez said.
By compressing nationwide transit times, UPS “staves off competitive disadvantages with FedEx, satisfies its biggest customer — and millions of customers for that matter — and ensures greater likelihood that Amazon packages remain within the UPS network,” Martinez said.
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