United Parcel Services

UNITED PARCEL SERVICES 6

UnitedParcel Services

UnitedParcel Services

E-commerceor e-business involves the buying and selling of goods and servicesover a network such as the World Wide Web or the internet. Thebusiness transactions can occur either from business to consumer,business to business, consumer to business or consumer toconsumer(Rouse,2005).E-commerce is also synonymous with technologies such as electronicfunds transfer, mobile commerce and supply chain management. It alsoemploys online shopping. (UPS) is one of thelargest logistics and shipping companies on the earth. The companywhich was founded by James Casey in 1907 started by delivering goodson bicycles when it first started but it has grown to become thelargest shipping company. The company is especially referred to asbrown because of the color of its delivery trucks. The company whichhas its headquarters in Georgia delivers over 15 million packages aday to its 6 million clients all over the world. The company hasoperations in over 220 countries around the world. UPS is the worldleader in the e-commerce, with its sales from e-commerce accountingto over 20% of the company’s revenue.

Duringthe last financial year ending 2014, the company reported annualrevenues of $58.2 billion with a net income of $3.032 million in thesame year. UPS embraced e-commerce in the early 1980’s after theenactment of the electronic commerce act in 1984. Since then thecompany has been the world leader in e-commerce and has never lookedback. Over the recent years, logistics companies such as UPS andtheir competitors have faced some serious headache over newe-commerce strategies which are being put in place by onlineretailers and major retail outlets around the country. In the essay,the author will evaluate and analyze the e-commerce industry byanalyzing the market environment, looking into the primary customersand discussing UPS’s SWOT analysis.

Part1

Severalchanges in strategies in the e-commerce are more likely to have anegative impact on UPS and its competitors in the industry. Accordingto business analysts, major retail outlets in the U.S are toying withnew e-commerce strategies that would impact the delivery of packagesover long distances. For instance, Amazon.com which is one of UPS’sbig clients is already setting up some warehouses close to itscustomers therefore aiming to cut down on the company’s shippingexpenses. In addition, the company is increasing its fleet ofdelivery trucks effectively putting UPS and FedEx out of business.Other retailers are also following suit and in a bid to cut downtheir shipping costs. Stores such as Wal-Mart, Gap and Best Buy arerelying on stores close to their customers to deliver goods insteadof relying on warehouses which are located miles away from theircustomers. Statistics from the U.S census of Bureau shows thate-commerce revenue amounted to $283 billion for the year ended 2014.This was more double the revenue recorded five years ago. However,the number of retail sales has not grown at the same rate as that ofrevenue as only 5.9% of all revenue can be attributed to retail in2014 compared to 3.6 % reported in 2009(Stevens,2014).

Mostof the boom in e-commerce can of course be attributed to UPS which isthe world leader in technology and geographical reach and couldconnect business together via the internet. In the late 1998, most ofthe e-commerce business was conducted between business to businesswith it recording 85% of all e-commerce transactions. This did notlast for so long as new entrants in the online space such as Amazonintroduced free shipping for its customers who purchased goods morethan $100. In 2005, the company introduced unlimited shipping for anannual fee of $79 but this did not auger well with its customers asthey preferred to go to the mall and do their own shopping. The riseof online shopping through e-commerce has grown the e-business sectorin leaps and bounds. However, with new opportunities new challengesemerge.

Forinstance, though UPS recorded its highest profit last year, theincrease in online revenues has not translated to changes in thebottom line. In fact, UPS’s margins have been stagnant for the pastthree years. UPS’s deliveries have also decreased over the years,with the company reporting deliveries of 42% compared to 55% in 1999.The greatest challenge in the market is to now cut down on theshipping costs in order to reverse the decline in the revenues. Thischallenge is especially become difficult to achieve with theincreased competition in the industry. For example, UPS is not onlynow competing with FedEx but a number of retailers who are setting uptheir own shipping infrastructure. Google Inc. is partnering withTarget Corp. to deliver goods on the same day at various citiesaround the country. The U.S Postal Service is also cutting down itsprices and is working with Amazon on grocery deliveries in over 20metropolitan areas. Amazon, the retail giant is also committed torevolutionizing the way shipments of goods is carried out. Analystsare expecting companies to come up with strategies to cut down oncosts but chances are companies are more likely to increase shippingcost due to increased competition in the industry.

Part2

UPSrelies mostly on business to business and online shoppers for most ofits revenues. According to company’s records e-commerce generatedover $11 billion in revenue and represented over 20% of the company’stotal revenue of $55.44 billion. On of UPS’s primary customers isAmazon, a retail giant which reported revenues of $ 74.45 billion in2013. In the same year, UPS delivered over 182 million of Amazonpackages which translated to 30% of Amazon’s shipping. UPS raisesprices between 3-5% per annum but negotiates the rates with its bigcustomers. Other UPS clients include retailers: Wal-Mart Inc., Gapand Best Buy. Wal-Mart which is the world’s largest retailer isseeking to cut cost related to shipping by reducing the distancebetween its stores and its customers. For example, the retailer hasincreased its locations from 25 to 50(Barr,2013).

Part3

UPShas some pros and cons as far as the SWOT analysis is concerned. Asfar as the strength goes, UPS is the world leader in logistics andhas integrated technology in its business operations. For instance,the company is planning to integrate a route-optimization system,Orion that will save the company over $50 million per year(Stevens,2014).A weakness in the company’s analysis is that the company is likelyto suffer from increased competition in the e-commerce industryespecially after companies are partnering with each other to cutcosts related to shipping. Opportunities in the industry include thefact that more business and clients are likely to utilize theinternet in ordering good and services online. However, increasedexperimentation and need to cut cost might lead retailer to set uptheir own shipping infrastructure and this might pose a seriousthreat to UPS e-commerce.

References

Barr,A. (2013, July 15). UPS,FedEx Threatened by New E-Commerce Strategies.Retrieved April 5, 2015, from Daily Finance:http://www.dailyfinance.com/2013/07/15/ecommerce-threat-ups-fedex-package-delivery/

Rouse,M. (2005, April). E-Commerce.Retrieved April 6, 2015, from Tech target:http://searchcio.techtarget.com/definition/e-commerce

Stevens,L. (2014, September 11). ForUPS, E-Commerce Brings Big Business and Big Problems.Retrieved April 6, 2015, from Wall Street Journal:http://www.wsj.com/articles/for-ups-e-commerce-brings-big-business-and-big-problems-1410489642