UPS expands by pushing customers to grow

By Helen Chernikoff

ATLANTA (BestGrowthStock) – United Parcel Service Inc (UPS.N: ) is continuing to invest in lines of business that depend on international trade barriers being relaxed, Chief Executive Scott Davis told Reuters on Thursday.

Historically, recessions trigger protectionist behavior, Davis said. But the world’s largest package delivery firm is sticking by a strategy, first formulated in the late 1990s, that sees the nurturing of global trade as the key to its own growth.

Within five years, UPS’ international package and its supply chain business should account for 50 percent of its revenue, $45.3 billion in 2009, up from about 40 percent now, Davis said.

The company will get there by expanding geographically and by selling its customers services that help them do the same thing, he said.

Atlanta-based UPS has a combined air and ground network in Europe, which accounts for 50 percent of its international revenue.

In recent years, UPS has been expanding east in Europe by purchasing its partners in such countries as Romania, said UPS International President Dan Brutto. It has not yet done so in Russia, but in September and October he will be in Russia to talk about further expansion there.

Expansion into Russia is “not far off,” Davis said.

The company has also picked out a site for its second healthcare supply chain facility in Europe, Brutto said. The supply chain business performs various functions other companies have deemed outside their core area of expertise, such as warehousing, repair, distribution and packing.

The intra-Asian market will grow the fastest over the next five years, Brutto said. Ultimately, UPS sees a combined air and ground network in China like it has in Europe and the U.S., Davis said. But before that can happen, the government must approve UPS’ application to be a domestic carrier.

“China is not very receptive for us to be a domestic player,” Brutto said. “That process will not be quick.”

Despite a planned $30 billion investment by the government of India in road infrastructure, UPS is not looking to expand there on the same scale as China because its infrastructure is just too poor, Brutto said.

The company prefers to maintain its presence in India through a logistics business that requires less investment. It offers services such as distribution for large multinationals.


Back at home, UPS is betting its customers will realize that they, too, will need to expand internationally — even the smaller ones, said Chief Financial Officer Kurt Kuehn.

To help convince them that the ability to export is a matter of survival and to reap the resulting business, the company has invested some of the savings from its domestic restructuring in the development of a team of “field marketers.” They will reach out to smaller companies to show them how to increase business by using UPS services, such as customs consulting.

Announced in January, the restructuring reduced UPS’ domestic regions to three from five and its districts to 20 from 46.

Pilot projects run in 2009 showed that active field marketing would increase revenue by giving UPS a greater share of more customers’ budget, Kuehn said, but would not disclose revenue projections.

The field marketers are already in place, Kuehn said. They are primarily occupied with researching and analyzing potential business targets but they have also started actual outreach to local businesses.


(Reporting by Helen Chernikoff; Editing by Mike Nesbit)

UPS expands by pushing customers to grow