Market Overview

UPS Zeroes In On 'Super-Hubs,' High-Margin Shipments To Grow Business

UPS Zeroes In On 'Super-Hubs,' High-Margin Shipments To Grow Business

Shipping trends of 2019 are requiring established freight carriers to evolve their operational models. UPS (NYSE: UPS) is developing more super-hubs to facilitate growth through handling more high margin shipments.

The new "super-hub" strategy developed by UPS is built on a network of newly established regional hubs across the U.S. These facilities are located in Atlanta, Georgia; Dallas/Ft. Worth, Texas; Phoenix, Arizona; Salt Lake City, Utah; and Indianapolis, Indiana. UPS issued a press release which stated these hubs are highly automated to support multiple high-capacity options during peak volumes. These facilities are adding five million square feet to UPS' capacity to increase the flexibility and reliability of its network.

UPS also opened 22 new facilities worldwide with a focus on automation to achieve 25-35 percent higher efficiency. The company stated that this upgrade added 350,000 piece per hour throughput (the amount of material passing through UPS' network) in the U.S. In addition, UPS added 300 new brown delivery trucks to its fleet. The overall goal of UPS' new developments in 2018 were to prevent a repeat of delays that occurred during the holiday season of 2017.

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The World Economic Forum reported that UPS is using AI-based technology to analyze worker activity in distribution facilities. This enables UPS to acquire valuable training data and incorporate machine-learning to improve its operations. These innovations contribute to 100,000 parcels being processed through UPS' Atlanta super-hub every hour.

However, as reported by FreightWaves SONAR, UPS struggled on the stock market throughout 2018, with share values declining 30 percent from a peak of $129.85 on January 12 to a low of $89.89 on December 24. Rival FedEx fared even worse, as its stock dropped almost 44 percent in value from $271.48 on January 19 to $152.70 on December 24.



Meanwhile, UPS' competition has proven itself to be relentless. Amazon had a strong performance in 2018, in part because of its logistical innovations. Forbes reported that Amazon (NASDAQ: AMZN) deployed 100,000 robotic platforms to its 26 fulfillment (distribution) centers, which boosted the productivity of the facilities and their employees. A CNBC article stated that FedEx neglected to publicly consider Amazon as a direct competitor in November, which may be perceived as a weakness. Rates for Amazon customers were 50 percent cheaper than those with UPS in 2018.

For its part, UPS has sought to compete with Amazon's innovations by conducting drone delivery trials. In 2016 the company partnered with drone manufacturer CyPhy Works to develop a durable, battery-powered, quadcopter delivery drone equipped with night-vision and secured communications. The drone will be used to delivery sensitive items such as medicine to remote locations like islands. UPS predicts that by 2020, the combined number of active commercial and hobbyist drones will reach seven million.

The capabilities of second-party logistics firms like UPS will be tested again in 2019 as the e-commerce market continues to expand and first-party shippers expand their own logistics services.

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Posted-In: Freight Freightwaves Logistics shippingEarnings News Markets General


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