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UPS Explains Plans for Logistics-as-a-Service

United Parcel Service may be seeing the same softening volume as other carriers have been reporting, but the logistics company is focused on a more ambitious buildout of its services its CEO is calling logistics-as-a-service. 

CEO Carol Tomé discussed the plans with analysts on Tuesday during the parcel delivery giant’s third-quarter call in which she outlined the company’s next business strategy phase called Better and Bolder, revised from the Better Not Bigger philosophy introduced when she joined the business in June 2020. 

“Bolder is about moving faster to grow in our targeted market segment,” Tomé said during the call. “It’s also about combining digital solutions with our global integrated network to create more value for our customers and new revenue opportunities for UPS.” 

That program would include using technology to gain visibility into purchases at the shopping cart level to match shipments with the same delivery timeframes in a bid to ultimately optimize costs. It also calls for greater visibility from the point of manufacturing, expanded financial offerings from UPS Capital, more tech at the warehouse and fulfillment level and improved reverse logistics capabilities.

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The CEO said it’s still “very early days” for logistics-as-a-service, but was upbeat about its prospects in the future. 

“When we combine logistics-as-a-service with our integrated network, we believe we will be unstoppable,” Tomé said. 

UPS reiterated its full-year guidance in which it’s expecting $102 billion of revenue. 

The transportation company also said it saw revenue in the third quarter rise 4.2 percent to $24.2 billion, while its operating profit grew 7.5 percent from the year-ago period to $3.1 billion. 

The outlook and third-quarter results come as retail and delivery companies are readying for the holiday shopping and shipping season. For UPS, the peak will come a bit later in the season. 

“This year we anticipate our volumes will peak later in December compared to last year as we expect consumers will return to more pre-pandemic shopping behaviors,” Tomé said. “While we will continue to use technology to match daily capacity with customer demand, we are also optimizing air and ground volume to make room for new customers where we can add the most value. While we will still have a peak…overall volume in the fourth quarter is expected to decline from last year due to contractual agreements.” 

Amazon’s contract with UPS is notable, with the e-commerce company accounting for roughly 11 percent of the delivery company’s business. However, UPS has made it clear in the past that percentage would decline and eventually fall below 11 percent by the end of this year. 

“We’ve contractually agreed on what makes sense for us versus what makes sense for them,” Tomé said earlier this year. “That means that the volume and revenue for Amazon is coming down.” 

Tomé told analysts this week the company would strike a balance between optimism and conservatism as it builds out its financial plan to take into account what it’s seeing with the softening of the global economy and what could potentially come next year. 

However, she confirmed UPS would stick with its business strategy in the way of making improvements for customers and also employee benefits. 

“We’re going to build a plan of conservatism because if you’re too optimistic, then your expenses are too high and then there is a whole bunch of wood you have to chop to get those expenses out,” she said. 

Driver contract negotiations are also looming for the company as it looks to next year. 

Aircraft mechanics for the company last week voted to ratify a new contract with UPS that includes annual increases of 3.3 percent over the contract’s three-year term. The mechanics are represented by the International Brotherhood of Teamsters. 

In the summer the company’s pilots, represented by the Independent Pilots Association, approved a two-year contract extension. 

The contract for drivers, also represented by the Teamsters, expires Aug. 1. The union made it clear this summer it would push for “the strongest possible contract” next year. 

While Tomé said the company “felt very good” about the contract terms struck with pilots and aviation mechanics, she offered little visibility into the upcoming negotiations outside of saying “we have got a great relationship with our employees and these are great jobs.”