Ups Strategic Analysis

I. Introduction

1. Background of the Corporation

“Seattle teens Jim Casey and Claude Ryan started American Messenger Company, a phone message service, in 1907. They were soon making small‑parcel deliveries for local department stores and in 1913 changed the company's name to Merchants Parcel Delivery. In 1915 Casey, who led the company for the next 47 years, established a policy of manager ownership, and Charlie Soderstrom chose the brown paint still used on the company's vehicles.

Service expanded outside Seattle in 1919 when Merchants Parcel bought Oakland, California‑based Motor Parcel Delivery. By 1930 the company, which had been renamed United Parcel Service, served residents in New York City (its headquarters from 1930 to 1975); Newark, New Jersey; and Greenwich, Connecticut.

Offering small‑package delivery within a 150‑mile radius of certain cities, starting with Los Angeles in 1952, UPS grew in relative obscurity as it expanded westward from the East Coast and eastward from the West. Noted for its employee‑oriented culture, the company through the 1960s required all executives to start as drivers.

The company gained notice in 1972 when the U.S. Postal Service named UPS as a competitor. In 1975 UPS crossed the border to Canada, and in 1976 it began service in West Germany. It started air express delivery in Louisville, Kentucky, in the late 1970s. By 1982 UPS Blue Label Air Service (now UPS 2nd Day Air) guaranteed 48‑hour delivery anywhere on the mainland and Oahu, Hawaii. Overnight service (UPS Next Day Air) began in 1982 and was nationwide by 1985.

Moving to Atlanta in 1991, the company began to work on its customer service. As part of a technology revamp, UPS created the electronic clipboard used by drivers to track packages and digitize signatures.

In 1994 Teamsters staged a one‑day strike to protest UPS’ new per‑package weight limit (raised from 70 to 150 pounds). The next year the firm allowed rank‑and‑file employees to buy UPS stock. Nevertheless, in 1997 UPS was hit by a 15‑day Teamsters strike that cost the company hundreds of millions of dollars. UPS settled the strike by combining part‑time jobs into 10,000 new full‑time positions; in 1998 the company headed off another labor threat by giving its pilots a five‑year contract with pay raises. Also in 1998, UPS ordered 30 Airbus A300‑600 aircraft.

After losing a tax dispute in 1999, UPS paid $1.8 billion into a special account with the Internal Revenue Service, pending appeal. (The company prevailed on appeal in 2001, and the case went back to the U.S. Tax Court. UPS and the IRS settled the case in 2002, and UPS was to receive about $1 billion worth of credits and refunds over several years.)

Chinese government‑owned logistics giant Sinotrans proved friendlier than the IRS, teaming up with UPS to expand UPS‑branded service across China. To fund global expansion, UPS sold 9% of its stock in a public offering valued at more than $5 billion ‑‑ then the largest IPO in US history. The company also agreed to buy Challenge Air Cargo (completed in 2001), a Miami cargo airline serving Latin America. The international push continued in 2000 as UPS expanded operations into Australia.

Not only expanding geographically, UPS broadened its services to better compete with rival FedEx and the U.S. Postal Service. In 2000 the company formed its e‑Ventures unit to develop subsidiaries focused on supporting e‑commerce businesses.

In 2001 UPS bought Mail Boxes Etc., a franchiser of stores that offer mail, packing, and shipping services. It also acquired global logistics management provider Fritz Companies, which was renamed UPS Freight Services, and expanded its financial services by buying First International Bancorp. That year UPS also placed its largest‑ever aircraft order: 60 Airbus A300‑600 cargo planes to be delivered by 2009. (UPS and Airbus subsequently renegotiated the order, and in 2005 Airbus agreed to supply newer A380 freighters instead of some of the planes that UPS originally ordered. Two years later, UPS said it would cancel its order for A380s because of delays in production of the aircraft.)

The company's contract with employees represented by the Teamsters came up for renewal in 2002, and a new six‑year deal was approved. That year the company moved to combine UPS Freight Services and UPS Logistics Group to form UPS Supply Chain Solutions. In 2003 UPS sold its aviation technologies unit to Garmin International.

To reflect the evolution of its mix of services, UPS in 2003 updated its company logo for the first