United Parcel Service (UPS) is a global provider of supply chain solutions and package delivery logistics. Through its extensive network of operations, the company delivered 19.1 million pieces per day totaling roughly 4.9 billion packages during 2016 [1]. To achieve its delivery objectives, the company must strike a delicate balance between large capital expenditures such as warehouses, aircraft, and delivery vehicles as well as the efficient use of these assets while adjusting for externalities such as regulation, volatile commodity markets, and changing consumer preferences. There are only so many levers that a capital-intensive business can employ; pricing increases, of approximately 4.9%, and lower thresholds for oversized packages are just two changes that UPS recently announced [2].<\/p>\n
Shifting consumer purchase behaviors and global trade demand has led to increased use of UPS\u2019 logistics network leaving the company with many strategic considerations going forward. In 2016 alone, domestic package volumes increased 9%, largely driven by growth in e-commerce fulfilment services [3]. Consumers expect packages at faster rates, with increased delivery options and flexibility, significantly impacting the way in which UPS must optimize its logistics networks and technology investments. Not all growth is driven by e-commerce, as some may suspect, which can be evidenced by UPS\u2019 recent $2 billion investment in international operations [4]. Such large investments certainly emphasize the company\u2019s need to monitor cost of inputs in the form of fuel, both for ground operations and air transport, capacity utilization in delivery vehicles, and last mile operations. Additionally, there are a number of regulatory hurdles that must be carefully evaluated as the company operates in multiple jurisdictions through a variety of transportation modes. These factors are all critical considerations for UPS\u2014sustainability is not simply an ancillary focus, it\u2019s an integral component of future strategy and margin protection.<\/p>\n
UPS outlines a number of sustainability initiatives annually, benchmarking their progress against a set of material issues facing the business and publishing results through a Corporate Sustainability Report. Environmental responsibility is one of 4 key pillars, primarily focused on emissions, fuel supplies, reduction of greenhouse gases, and traffic congestion within cities [5]. Each of these issues pose challenges to the company\u2019s reputation, ability to manage cost, and operational capacity as e-commerce increasingly drives up volumes across the distribution network. Actionable milestones have been outlined with target dates extending through 2025 with annual targets and capital investments to introduce, upgrade, or replace technologies that will increase efficiencies throughout the supply chain.<\/p>\n
Across its operations, most energy consumption is in the form of fossil fuels used within air and ground operations. This has led to a 12% reduction target in absolute greenhouse gas emissions by the year 2025 [Ibid, p9]. The emissions target will be achieved through a variety of approaches that blend both traditional best practices and enhanced technology. One interesting example is the use of Orion, a system implemented in 2008, which optimizes driving routes and minimizes stops to reduce fuel consumption. When coupled with a long-standing company best practice of favoring right-hand turns for truck deliveries, UPS is able to save 10 million gallons of fuel each year and reduce 100,000 metric tons of CO2 annually [6].\u00a0 UPS also recently announced a partnership with New York State to develop technology that will convert diesel powered trucks to electric power sources. The near-term goal for this program is for 25% of all ground transportation vehicles to be powered with alternative fuel sources by 2020 [7].<\/p>\n
In the short and medium term, it\u2019s imperative that UPS continue a culture of transparency and partnership with respect to the ongoing sustainability initiatives that have been outlined. Recognizing that none of the initiatives set forth are entirely binding, there is still an element of reputation risk that the company could potentially face if it is unable to meaningfully execute these objectives. Additionally, UPS could partner with clients such as Amazon to find ways in which delivery behavior could be influenced, from single item purchases to more \u201cadd-on\u201d and bundled deliveries. This would require additional education and awareness with consumers.<\/p>\n
In closing, I\u2019d ask classmates provide commentary as to how, if at all, consumer behavior could be influenced to reduce the sheer volume of packages delivered through UPS\u2019 networks, and, whether or not they believe this reduction would have a meaningful effect on greenhouse gas emissions.<\/p>\n
Footnotes<\/p>\n
[1] United Parcel Service, 2016 Annual Report, p. 1, http:\/\/nasdaqomx.mobular.net\/nasdaqomx\/7\/3521\/5025\/, accessed November 2017.<\/p>\n
[2] Paul Ziobro, \u201cUPS Ramps Up Spending to Keep Up With Online Shoppers,\u201d The Wall Street Journal, October 26, 2017, https:\/\/www.wsj.com\/articles\/ups-profit-falls-amid-higher-costs-1509022468<\/a>, accessed November 2017.<\/p>\n [3] United Parcel Service, 2016 Annual Report, p. 29, http:\/\/nasdaqomx.mobular.net\/nasdaqomx\/7\/3521\/5025\/<\/a>, accessed November 2017.<\/p>\n [4] Thomas Franck, \u201cBuy FedEx and UPS on global trade upside, overblown amazon fears: Golman Sachs,\u201d CNBC, November 13, 2017, https:\/\/www.cnbc.com\/2017\/11\/13\/buy-fedex-and-ups-on-global-trade-upside-overblown-amazon-fears-goldman-sachs.html<\/a>, accessed November 2017.<\/p>\n [5] United Parcel Service, 2016 Corporate Responsibility Report, p. 12, https:\/\/sustainability.ups.com\/media\/ups-pdf-interactive-2016\/UPS_2016_CSR.pdf<\/a>, accessed November 2017.<\/p>\n [6] Jacopo Prisco, \u201cWhy UPS trucks (almost) never turn left,\u201d CNN, February 23, 2017, http:\/\/www.cnn.com\/2017\/02\/16\/world\/ups-trucks-no-left-turns\/index.html<\/a>, accessed November 2017.<\/p>\n