Introduction
Transportation of packaged goods from a destination to another is a common activity in the whole
world today. Billions of goods ranging from small parcels to heavy machineries are being delivered
physically or mechanically every day.
Companies in charge of such services use different modes of transport, for example, air, road, rail,
and sea. The commitments of these companies include prompt and efficient delivery of goods on
top of reliable and lucrative services. However, with the increased demand for delivery services
coupled with the current global challenges, logistical networks have become very intricate. No
doubt that distribution business is a huge and integral part of the global economy. Similar to
business globalization the distribution business has continuously grown in the last decade. This
remarkable growth has not only led to massive volumes of transactions to be processed, but has
also created new aspects in distribution and therefore increased problems associated with
operations at the distribution points.
United Parcel Service (UPS) is among the private companies managing transport and international
supply chain services. The company manages goods and information in almost every country in
the world and handles about 13.5 million packages daily. Its current headquarter is in Atlanta,
Georgia. Besides its core business, UPS logistic business also includes global financial trading,
logistics technology, mail innovation and ground deliveries, consultancy services, warehousing
and supply chain management.
Over the last twenty years, a lot of focus has been on the growth of service industry since they
operate in a highly competitive environment. In addition, the competition has changed from simple
pricing to encompass a range of other factors, for instance, product and service quality, innovation,
and flexibility of response to the needs of the clients. Therefore, company top organs have to come
up with strategies that are capable of withstanding the current global challenges.
The use of maritime shipping, train, trucks and air service by the company has helped to minimize
cost, optimize use of space and increase reliability. UPS has also invested heavily in information
communication technology (ICT). The ICT enables the company to easily access significant
information in the supply chain. In addition, the UPS tracking system enables the company’s
clients to monitor the progress of their goods online.
The objective of this study is to explore logistic problems and issues that affect United Parcel
Service. Even though the company is among the top logistics companies in the world, there are a
number of issues and challenges that it is experiencing under the current global.
These problems include unstable fuel prices, lack of client confidence in delivery times and speed
of package delivery, and overreliance on ground control by their pilots to decide on their move.
However, the study will focus on two major issues: the company’s logistic issues, debt problem,
and obstacles faced the company in the Chinese market.
Companies (including UPS) have the tendency to borrow heavily to fund their projects. The
company’s borrowing problem is attributed to high competition in the global logistics business.
This has forced UPS to invest heavily on the state-of-the-art technologies through borrowed funds
in order to gain competitive advantage in the industry. Borrowing is not bad.
UPS Brief Expansion History
On August 28, 1907, James Casey founded the American Messenger Company with Claude Ryan
in Seattle, Washington, capitalized with $100 in debt. Most deliveries at this time were made on
foot and bicycles were used for longer trips. The company focused on package delivery to retail
stores with mail delivery to their biggest client, the U.S. Post Office.
In 1913, they acquired a Model T Ford as the first delivery vehicle. In 1919, the company made
the first step in the expansion plan to Oakland, California, and changed the name to UPS (United
Parcel Service).
In 1922, UPS was one of the only companies in the US to offer common carrier service and it was
limited to Los Angeles, but by 1927, they expanded to areas up to 125 miles outside the city.
In 1930, a consolidated service began in New York City, and soon after in other major cities in the
East and the Midwest. The use of common carrier for delivery between all customers placed UPS
in direct competition with USPS and the Interstate Commerce Commission. The common carrier
service was applied in cities where UPS could use the service without the authority of the ICC and
state commerce commissions. The first city for UPS to use common carrier status outside
California was Chicago, Illinois, in 1953.
UPS went through the air service experience at 1929 with private airlines, but the great depression
and a lack of volume ended this service at this time. In 1953, UPS resumed air service with twodays delivery to major cities along the East Coast and West Coast and called it UPS Blue Label
Air.
In 1975, UPS moved their headquarters to Greenwich, Connecticut, and started serving all of the
48 states of the United States. Then it became the only company to deliver wherever wanted within
the contiguous United States. Not only the US but also it established operations in Canada under
the name of (UPS Canada Ltd.) Starting with Toronto and Ontario. After one year UPS started a
domestic operation in West Germany.
In 1988, UPS Airlines was launched with authorization from the Federal Aviation Administration
and became the fastest growing airline in the FAA history. In 1989, Domestic air service was
added to Germany. By 1993, UPS was delivering up to 11.5 million packages and documents per
day.
In 1992, UPS started tracking all ground shipments electronically using developed handheld device
called “Delivery Information Acquisition Device” (DIAD). In 1994, UPS deputed their website
UPS.com, the interface was providing every information the customer would use even the internal
operational information. After 27 years, they chose to hide it again for the most packages.
In 1998, UPS Capital was launched to enable companies to grow their business through a
comprehensive menu of integrated financial services through UPS. In 1999, UPS acquired
Challenge Air to expand its operations in Latin America.
In 2004, UPS entered the heavy freight business with purchase of Menlo Worldwide Forwarding
and rebranded it as UPS Supply Chain Solutions. In 2005, UPS announced that it has completed
its acquisition of less-than-truck trucking company Overnite Transportation and rebranded it as
UPS Freight. This facilitated the non-stop delivery service between Guangzhou and the United
States. In 2005, UPS purchased Lynx Express, one of the largest independent parcel carriers in the
United Kingdom, after receiving approval for the transaction from the European Commission.
In 2012, UPS intended to acquire TNT Express to help extending in European and Asian markets.
Unfortunately, the deal didn’t go well as UPS had failed to obtain permission from the European
Commission and as such had been blocked on competition grounds. Also, UPS acquired Brusselsbased company Kiala that provides e-commerce retailers the option to have goods delivered to a
conventional retail location.
In late 2019, UPS won the approval of the Federal Aviation Administration to fly drones. This
allowed UPS to deliver health care supplies using a fleet of drones. After two years, UPS Freight
was sold to TFI International and renamed TForce Freight. This deal opened the way to UPS to
concentrate in small packages delivery and it boosted their profits during the COVID-19 pandemic
by 21% jump in the fourth quarter of 2021.
UPS Logistic issues and problems
As earlier mentioned, the company has been experiencing a number of issues/problems over the
recent past. These issues/problems include unstable fuel prices, client confidence in delivery times
and speed of package delivery, and overreliance on ground control by their pilots to decide on their
moves.
The issue of client confidence in company’s delivery time is partly attributed to poor infrastructure
in some countries. UPS is the first company to recommend money back guarantee to its clients.
The company has also improved delivery times in most American cities. It did this by changing
rail schedules and altering hub-and-spoke interstate trucking network. Other improvements
include changing packaging locations and sorting time.
The problems of package delivery speed and delivery time are almost synonymous except that the
latter is only concerned with predetermined schedules. UPS introduced Delivery Information
Acquisition Device to enable their employees report delivered packages in time. This device scans
barcodes and capture signatures on packages and this data can be uploaded to the company’s
system through mobile phones. In addition, the company is basing the package flow system on
smart labels which are also bar-coded.
The problem of pilot overdependence on ground control to decide on their movements should be
addressed by the company through the installation of the Automated Dependent Surveillance –
Broadcast (ADS-B) in the aircraft cockpit. Automated Dependent Surveillance –Broadcast
transmits all the vital information (speed, GPRS coordinates, altitude, and direction) to all planes
and therefore plays a significant role in controlling air traffic. ADS-B helps pilots to be aware of
the activities of other planes and therefore can make individual informed decisions to reduce time
wastage and fuel usage. This technology is particularly useful during bad weathers where air traffic
accidents are common.
The problem of unstable fuel prices not only affects the global logistics industry but the entire
economic and non-economic sectors in the world. Logistic experts argue that the installation of
new software systems will help to improve on the efficiency of fuel usage. The new software
systems are able to create reloading labels for packages to minimize the time spend in package
handling. In addition, the new geographical information system software will be able to help
transport managers to map out routes and can run simultaneously with the existing back-end
systems. Installation of such software system will minimize the mileage of the United Parcel
Service’s delivery fleet and as a result save the company over ten million gallons of fuel.
Debt Problem
Generally, borrowing is not bad since it helps the business to grow faster. Even the founding fathers
of UPS Company (Jim E. Casey) borrowed 100 bucks from his friend to start the delivery business.
On the other hand, excess debt is not healthy for the company.
UPS has borrowed heavily over the recent past to improve its logistic services. In June 2012, the
total amount of the company’s debt was estimated to be over13. 2 billion dollars (Y Charts 1). The
company’s debt ratios (debt to equity and debt to capital) have deteriorated from 2008 to date. The
UPS borrowing trend was heavily affected by the global financial meltdown and stiff competition
in the global logistics industry.
China’s Logistic Obstacles
China is among the fastest growing economies in the world. The country became a member of
World Trade Organization (WTO) in 2001. Due to its vast market potential and cheap labor, major
global logistic companies and multinational corporations have all moved to China. However,
logistics still remain a thorny issue in China. There is still a colossal gap between logistic service
in China and Western countries. In addition, Chinese logistics are still fragmented. The country
has numerous small logistic companies with less than 3 percent share of the Chinese market. These
companies can only offer basic services, for instance, haulage and storage and are not able to
provide value-added service such as, stock control and information communication technology.
Since joining the WTO, almost all global logistic giants have come to establish themselves in
China’s logistic market.