medical airlift
In Raleigh, N.C.,
UPS uses drones to
ferry blood and urine
samples across the
WakeMed hospital
complex. Health care
providers, which
need fast delivery,
have emerged as an
ideal test case for
commercial drone use.
UPS: STAND AND DELIVER
80
FORTUNE.COM // JANUARY 2020
almost 10% of UPS’s revenue. (UPS itself doesn’t break out
such numbers.) But the e-commerce heavyweight is ship-
ping a fast-growing share of its own deliveries through its
Amazon Logistics unit, and it’s widely seen as only a matter
of time before it not only withdraws its own business from
its delivery rivals but also begins poaching other retailers
from them. At the same time, some of UPS’s historically
best customers, department stores and retail chains, are
shrinking or dying—thanks again, in part, to e-commerce.
It’s a fast-changing, treacherous landscape—and one in
which UPS was stumbling when Abney was chosen as CEO,
in 2014. During the prior year’s holidays, the company
made the worst kind of headlines when it failed to provide
the shipping capacity it had promised retailers. The upshot:
Millions of people had to open their Christmas presents in
January. Subsequent years exposed deeper problems. As
consumers started ordering more items online, UPS was
making a growing share of deliveries to homes, where it
dropped off an average of just one package per stop, and
relatively fewer to businesses, which typically take more
than three per stop. The changing mix—more stops,
slower throughput—was crushing UPS’s profitability
even as delivery orders to retail chains dwindled. “They
had fallen behind,” says Schneeberger. “They should
have seen the writing on the wall with e-commerce.”
When UPS reported weak fourth-quarter results for
the end of 2016, its stock dropped 10% in a day.
It took visits with the heads of all of the big retailers
for the real lessons to sink in with Abney. The world
was moving to e-commerce, with consumers expecting
rapid delivery of their purchases seven days a week.
Amazon had lit a fire under those big retailers, and as
they moved to respond, UPS had to evolve too. “Going
in, I thought I had a pretty good picture of what UPS
needed to look like in the future,” he recalls. “Coming
out, I had a lot more input.”
The plan he and his team eventually formulated —
and announced in mid-2018—required changing or
even abandoning some of UPS’s cherished strate-
gies. Abney describes it as shifting from a mindset of
“constructive dissatisfaction,” which meant making
incremental changes to fix existing programs, to one
of “continuous transformation,” which emphasizes
reconsidering all of the company’s programs regularly.
In practice, going to seven-day home delivery required
a more flexible—and less expensive—delivery fleet. In-
vesting in new technologies like automation, robotics,
and drones required finding other cost savings. And
truly understanding customers’ needs meant the com-
pany’s senior leadership ranks needed to include more
people with outside expertise, an unheard-of change
to a culture that had long relied on developing talent
from within (Abney himself included, of course).
Today, Abney is presiding over an incipient turn-
around. Revenue, which was nearly flat in his first few
years, is expected to top $74 billion for 2019, up 20%
since the end of 2016. More important, analysts expect
earnings before interest and taxes to jump 10% this
year and that much again each of the next two years.
UPS’s stock, which had been on a wild ride for several
years, is up 21% in 2019, crushing rival FedEx.
Admitting that UPS “stubbed its toes” at first
with online shopping, Abney explains, “We invested
wholeheartedly in e-commerce and now ... we’ve got
competitors trying to catch up.”
“The scope of the changes is quite transformative
to the pace at which UPS has historically operated,”
says analyst Ben Hartford, who follows the industry at
Baird. “It’s still early, and they still have work to do. But
we’ve seen enough evidence that it’s beginning to work.”tHE COMPANY KNOWN as “Brown” may have
a steady, venerable veneer, but UPS has
transformed itself multiple times in the
past. It started in 1907 as the American
Messenger Company, founded with
borrowed money by two teenagers, James Casey andCOURTESY OF UPS