{"id":22483,"date":"2017-11-14T17:18:18","date_gmt":"2017-11-14T22:18:18","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/when-big-brown-loses-its-raison-de%c2%b7tre-ups-rethinks-its-strategy-in-reaction-to-isolationism\/"},"modified":"2017-11-14T17:21:10","modified_gmt":"2017-11-14T22:21:10","slug":"when-big-brown-loses-its-raison-detre-ups-rethinks-its-strategy-in-reaction-to-isolationism","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/when-big-brown-loses-its-raison-detre-ups-rethinks-its-strategy-in-reaction-to-isolationism\/","title":{"rendered":"When Big Brown loses its raison d\u2019\u00eatre \u2013 UPS rethinks its strategy in reaction to isolationism"},"content":{"rendered":"

Building global networks<\/strong><\/p>\n

UPS first entered the International market in the mid-70s with operations in Canada and Germany. In 1988, UPS launched its own airline to facilitate the transportation of goods across international borders. By 1992, UPS was delivering to over 200 countries and territories and its services touched 4 billion of the 6 billion global population [1].<\/p>\n

In response to customer supply chains going global and the rise of manufacturing in low cost countries, UPS built the capability to move international heavy freight through major acquisitions – Challenge Air Cargo in 2000 [2], Fritz companies in 2001 [3] and Menlo Worldwide Forwarding in 2004 [4]. UPS now serves over 220 countries and carries 2% of International GDP and 6% of US GDP in its network [1].<\/p>\n

\"\"<\/a><\/p>\n

In 2016, 20% of UPS Revenue and 37% of UPS Profits came from International Operations clearly underlining the importance of international commerce to UPS [5].<\/p>\n

Scenario planning \u2013 increased isolationism and decrease in international trade<\/strong><\/p>\n

The recent US election, where President Trump won on a platform of Nationalism and restricting international trade, the UK Brexit vote, and the rise of political parties espousing nationalism and isolationism in major EU countries, presents a clear threat to this successful strategy.<\/p>\n

Fortunately, the UPS Strategy group has employed a very effective \u201cScenario Planning\u201d process since the late 1990s. In its first scenario planning session in 1997, UPS managers explored the \u201cRegressive World\u201d scenario, one of four scenarios, focused on strong regional and national regulations. In a follow-on scenario planning exercise UPS management considered a \u201cBordered Disorder\u201d world characterized by a highly regulated protectionist environment, an increase in security threats, and environmental and financial shocks [10,11]. Although both scenarios were discarded in favor of globalization, the potential action steps, if those scenarios were to prevail, should form the basis for future action.<\/p>\n

What UPS is doing in response<\/strong><\/p>\n

In-country small package operations:<\/em> UPS has developed comprehensive domestic transportation networks in major European countries through acquisitions like Lynx in UK [6], Stolica in Poland in 2005 [7]. In 2008, UPS assumed control of China and Korea domestic operations, and acquired Trans Courier Services SRL in Romania [8]. UPS also acquired Nightline logistics, immediately positioning UPS as one of the top local shippers in Ireland [9].<\/p>\n

Build for heavy freight domestic capabilities:<\/em> The 2006 acquisition of Overnite for Truck Load (TL) and Less-than-truck-load (LTL) movements has given UPS a strong domestic heavy freight capability to support domestic manufacturing. In 2015, UPS acquired Coyote Logistics, a TL brokerage service for US domestic heavy freight [12].\u00a0 In 2017, UPS acquired Freightex to expand TL brokerage operations in UK and Europe [13].<\/p>\n

Improve domestic cost structure: <\/em>\u00a0UPS is \u2018bending the cost curve\u2019 by deploying On-Road Integrated Optimization and Navigation (ORION) to optimize the routes for UPS drivers saving 100 Million miles and 10 Million gallons of fuel annually. UPS is also automating its 30 largest hubs in a four-year program leading to productivity improvements targeting $300M to $400M in annual cost savings [10].<\/p>\n

What else should UPS do?<\/strong><\/p>\n

In addition to the actions already taken, UPS management needs to accelerate development of short haul domestic capabilities<\/p>\n

Aircraft acquisitions for short haul traffic: <\/em>UPS is currently deploying 787 freighter aircraft for intercontinental freight movement. UPS needs to switch to smaller aircraft optimized for short haul flights \u2013 designed for intra-Asia, intra Europe and US domestic flights.<\/p>\n

Build heavyweight ground transportation capabilities: <\/em>UPS should consider acquisitions to build asset-based TL capabilities to support the movement of raw materials and parts for domestic manufacturing.<\/p>\n

Provide same day and one-hour delivery services: <\/em>Leveraging the growth of e-commerce, UPS should develop same day and rapid delivery services in conjunction with Amazon and other retailers building additional domestic revenue streams.<\/p>\n

Lobbying efforts: <\/em>UPS should focus its considerable resources and PAC to support free trade and globalization in the US Congress and in International countries.<\/p>\n

Additional considerations<\/strong><\/p>\n

\u00a0<\/strong>There are a number of additional questions that need to be addressed.<\/p>\n

    \n
  1. \n
      \n
    1. Is this isolationism trend here to stay or is it just a transient development?<\/li>\n
    2. If globalization has led to lower consumer prices, what will be the impact of isolationism on costs, growth rates, and the probability of recessions?<\/li>\n
    3. Will isolationism and nationalism lead to more frequent wars and political disruptions as compared to open societies based on global trade?<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n

      Word count: 772<\/p>\n

      References<\/strong><\/p>\n

      [1] UPS Pressroom. (2017). UPS Timeline<\/em>. [online] Available at: https:\/\/pressroom.ups.com\/pressroom\/ContentDetailsViewer.page?ConceptType=FactSheets&id=1426321596330-338<\/a> [Accessed 8 Nov. 2017].<\/p>\n

      [2] Blackmon, D. (1999). UPS Agrees to Buy Challenge Air,Continuing Latin American Push<\/em>. [online] WSJ. Available at: https:\/\/www.wsj.com\/articles\/SB930523426689986069<\/a>.<\/p>\n

      [3] ARMBRUSTER, W. (2001). UPS TO ACQUIRE FRITZ COS. FOR $450 MILLION<\/em>. [online] Joc.com. Available at: https:\/\/www.joc.com\/economy-<\/a><\/p>\n

      [4] Material Handling and Logistics (MHL News). (2004). UPS to acquire Menlo Worldwide Forwarding<\/em>. [online] Available at: http:\/\/www.mhlnews.com\/transportation-amp-distribution\/ups-acquire-menlo-worldwide-forwarding-0<\/a>.<\/p>\n

      [5] \u201cUPS Quarterly historical income and operating data\u201d, UPS Investor relations<\/em>, 4th<\/sup> Quarter, 2016<\/p>\n

      [6] Davoudi, S. (2005). UPS to acquire Lynx Express for $96.5m<\/em>. [online] Financial Times. Available at: https:\/\/www.ft.com\/content\/e817b04e-fd00-11d9-b224-00000e2511c8<\/a>.<\/p>\n

      [7] UPI. (2005). UPS buys Stolica<\/em>. [online] Available at: https:\/\/www.upi.com\/UPS-buys-Stolica\/15031107807383\/<\/a>.<\/p>\n

      [8] Ajot.com. (2008). UPS today announced it has agreed to acquire its authorized service contractor in Romania<\/em>. [online] Available at: https:\/\/www.ajot.com\/news\/ups-today-announced-it-has-agreed-to-acquire-its-authorized-service-contrac<\/a>.<\/p>\n

      [9] Muir, J. (2017). UPS to expand in Ireland with Nightline Logistics acquisition<\/em>. [online] Air Cargo Week. Available at: http:\/\/www.aircargoweek.com\/ups-expand-ireland-nightline-logistics-acquisition\/<\/a>.<\/p>\n

      [10] Interview with retired UPS President of Customer Solutions and participant in UPS Scenario Planning, (November 5, 2017)<\/p>\n

      [11] Garvin, David A., and Lynne Levesque.\u00a0“Strategic Planning at United Parcel Service.”\u00a0性视界 Business School Case 306-002, November 2005. (Revised June 2006.)<\/p>\n

      [12] Page, P. (2017). How Coyote Logistics Went From Startup to $1.8 Billion UPS Takeover Target in Under a Decade<\/em>. [online] WSJ. Available at: https:\/\/www.wsj.com\/articles\/how-coyote-logistics-went-from-startup-to-1-8-billion-ups-takeover-target-in-under-a-decade-1438367463<\/a>.<\/p>\n

      [13] Kelly, Y. (2017). UPS acquires U.K.-based Freightex<\/em>. [online] AJC. Available at: http:\/\/www.ajc.com\/business\/ups-acquires-based-freightex\/Oft35EShR7onAkSs3yNaVI\/<\/a>.<\/p>\n

       <\/p>\n

       <\/p>\n

      \u00a0<\/strong><\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n

       <\/p>\n","protected":false},"excerpt":{"rendered":"

      The recent increase in isolationism will reduce the global movements of goods \u2013 is this an existential threat to UPS? 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