UPS's future

[air_upser]

As I drink my morning coffee and listen to both my wife and dog snore, I decided to write a little in Brown Cafe. I value everyones opinion and look forward to reading responses.

A topic that is mentioned in various threads is UPSs long-term outlook. Let me begin by saying that I believe UPS has a good outlook. However, there are many issues we need to deal with.
Lets look at the airlines. What has forced all the legacy carriers into bankruptcy? High fuel costs, competition, labor costs and pension obligations.
Hmm, sounds familiar doesnt it?
UPS is at risk due to the same circumstances. However, we also have strengths that the airlines dont.

1. Diversification. Supply chain solutions is growing fast. Even if our ground business went under (which I dont think it will) UPS will continue as a going concern strictly on its SCS operation.
2. Brand recognition. How much do think the UPS name and brown color is worth. Everyone knows the brown uniform and everyone loves the UPS driver.
3. Evolution. I have only been here 10 years, but I have seen UPS evolve. We are no longer the brown bear Competition has forces us to evolve into a more customer focused organization. We are losing market share, but we are not losing business. We are not delivering fewer packages, and we will continue to evolve.

Our problems.
1. Fuel costs. Not sure how much more we can do about this. We hedge, tack on a fuel surcharge, put on rev limiters, and roll out fuel efficient vehicles. In the big scheme of things, America needs to reduce its overall demand for fossil fuels. Its going to run out eventually, so why not start now?
2. Labor issues. This could take up pages of comments. There are issues on both sides and I have no idea what the solution is. In an ideal world, we would all be partners in the business with an equal share. We would fire the rotten apples whatever their job title was, and work as a team to meet our customers needs. In reality, there is mistrust, egos, contracts, and politics to deal with. To meet our competition, something needs to happen. Either their workforce becomes Unionized, or we start working better with ours. I have said previously that I believe our workforce is paid fairly and received outstanding benefits. If there are legitimate issues, raise them, but dont just demand a 10% raise because you can.
3. Going Public. Im sure there are many good reasons we went public. But, there were also drawbacks. Our thinking has been reduced to quarters rather than decades. No-brainer decisions have been reduced to can we push that off until next quarter? . I dont care if the stock price goes down this quarter. I care about the stock price in 20 years when I retire. If it goes down this quarter, Ill buy more, as long as I am confident that the long term outlook is good.
4. Competition. No other ways to put it- There are cheaper ways to ship a package out there. Do they do it better? Not yet. Will they? Only time will tell. Our workforce, methods, and technology will help us compete. Their labor costs will rise as well. If I were a manager for DHL or Fedex ground I would be embarrassed by the appearance of my workforce. Theyre sloppy, the vehicles are junk, and just dont appear professional like our UPS ladies and gentleman do. As I said before, there are issuesso lets work through them and move on.

In conclusion, I believe there are considerable risks to UPSs future. Will it survive? Yes, I think it will, but only if we work together. What is your opinion and solution? (I hoping this doesn't turn into a "management sucks" versus "union sucks" thread. There's enough out there already!

 

[ok2bclever]

Diversification into profitable arenas is a good and solid thing as is name recognition although to a lesser degree as that becomes worthless if we do not uphold the reason for the name recognition which is a legacy of great service.

Evolution works both ways as many a species evolved themselves right out of the biosphere and we need to be careful that we don't take one of those branches.

Still, we have a long way to go where we could improve reaction time, etc.

It just seems we are more concentrated on "looking good on paper" than meeting the customer's needs and getting the job done.

Fuel costs are an even playing field.

We pass the cost on to the customer and all competition has to as well or they are soon not a viable business and that will end any competition concerns we may have with them.

Competition has always been there, will always be there.

We get the job done right and it will just always be a thorn in the side rather than a stake through the heart.

Labor.

Yep volumes can be written here.

Some common sense is needed on both sides.

The bottom line from my perspective is we make a pretty good wage and we always have.

However, each year my discretionary income is less.

Each and every year.

I am not saying it's UPS's fault.

The primary factor is the US economical situation and the negative trends that appear to be increasing on all fronts.

Energy costs, general cost of living, skyrocketing health costs, the disintegrating safety nets such as pension and social security, the general investment malaise that most of us have been experiencing for most of the last decade, etc.

I hope there are wise heads involved and not just short sighted greedy ones on both sides, but especially on UPS's side as I see them holding most of the cards.

I think the next contract will be a pivotal one for UPS future viability.

The bottom line is if the income and benefits the workers derive from UPS employment degrades too far relative to alternatives the company suffers a brain and character drain that ultimately becomes terminal to the corporation just as certainly as paying the workers too much.

It is a fine line and not an easily derived one to tread.

 

[susiedriver]

Air_upser,

I will try to address your very legitimate concerns on a point by point basis.

Im not sure that a comparison of UPS to the airline industry as a whole is valid. Any transportation company faces a nearly identical set of obstacles. There is a huge difference between UPS, and say, NWA. UPS is strictly in the freight business. We dont haul human cargo, as a rule. The passenger airlines do, obviously. Now, from your moniker, I would assume you have something to do with the UPS air operation. Can you tell me what the price differential would be between flying, say 150 passengers and their luggage from New York to LA at $200 a head and filling that same plane to capacity with air freight? No comparison, is there? Thats why you cannot use the airline industry as a comparison with UPS. Personally I dont know why UPS doesnt just settle with the IPA. Do you have any idea what late freight and a simple thing like a pilot getting on the brakes a bit hard costs the company? Pony up, and be done with it.

Diversification is a good thing, ignoring the core business is not. That is what seems to be happening. On one hand you say how great the drivers (public face of the company) are, yet almost to a man (woman), the drivers complain about excessive hours and unreasonable work standards. Do you think they only complain to each other?

Fuel? Thats a non issue. It is the same or worse for everyone.

Labor? Thats a hot potato, for sure. Ill leave that for another post. I will just make one comment, management controls labor, how they do it is up to them.

Going Public? Well, a lot of people made a lot of money. Most of them no longer are in power positions with the company anymore. Just like politics, follow the money. I dont think it has been at all to the companys advantage going public. One could put forth the argument that the stock would be at about the same price per share today if we had remained private, and we would not have had to experience the daily fluctuations that we live through now, just a slow steady increase.

Competition? Well I have to disagree with you. From my experience the competition does do it as least equally as well, and at a cheaper rate. Jim Caseys credo of best service, best price is no longer in play, in fact much of Caseys teachings have fallen by the wayside. I also think that you would have a hard time convincing a majority of the drivers here that FDX & DHL drive junk as compared to UPS, and although DHLs uniforms are garish and their appearance standards arent as strict as UPSs, I wouldnt lump FDX into the same category, they have sharp uniforms, much more comfortable than ours, and they do maintain a professional appearance. In recent years I would have to say that at least on the express side of their business, their vehicles are cleaner than ours, as well. In my old center, which is extended, we were lucky to have the vehicles washed once a week, I wont even comment on the insides.

I recently read an article by Yvon Chouinard, founder of Patagonia, he has ideas on running a business that seem to work. It was in the October issue of Outside Magazine, and is not online yet. I did find this article about him, that is worth reading: http://www.time.com/time/reports/environment/heroes/heroesgallery/0,2967,chouinard,00.html

His basic precept is, do the right thing, and everything else will fall into place.

 

[racerx]

Wow, air upser! Great post!

I think we are in a great position right now for the future. Say what you want about Mike Eskew and the current upper management, but I think that they looked into the future and picked the best path for us. They recognized that small package had become a mature market with little growth potential. Given the fact that we had the most market share of all the players, we were not going to continue large scale growth by continuing to focus all our attention on small package. They decided that rather than UPS being a part of our customers supply chain, we wanted to become their supply chain. For years, customers, both large and small, have asked us to be an extension of their company and make final deliveries to their customer and distributors. But now, we are positioning ourselves so that instead of just handling the last mile delivery, we will be able to handle all transportation needs for a customer.

Currently, ABC Companys call center takes an order for a widget. The call center processes that order on an IBM system and it is relayed to their only warehouse in California where one of their employees picks and packs the widget. They then process the shipment though Worldship for ground, one of the finest in Brown shows up for the daily pick up and UPS delivers it to the customer 5 days later. Because the employee that picked that shipment happened to notice that they were getting low on widgets, he calls the home office to order more. The home office calls the vendor and orders more widgets. A few days later, more widgets show up, but it is a few days late (they must have used DHL!). All of the customers who found out that this company was out of widgets cancelled their order and went some place else. In this scenario, the only piece of the action that UPS gets is the final delivery of the widget.

But picture this: A UPS Supply Chain Solutions call center takes an order for an ABC Companys widget. The SCS call center processes the order on an UPS proprietary system and the order is relayed to one of 10 SCS warehouses strategically located across the country that stocks ABCs products. In this case, the order is going to Knoxville, TN, so the SCS warehouse in Louisville gets the order. It is picked, packed, and shipped by a UPS SCS warehouse employee and shipped via ground to deliver the next day. The SCS Warehouse Management System (WMS) noticed 2 days ago that the widgets were below a predetermined amount and placed an order with the vendor of the widgets. Those parts are shipped via UPS NDA with a Quantum View Notify alert to the UPS SCS warehouse supervisor so that he knows that he will have a large amount of inbound deliveries tomorrow so that he can plan his folks work day. In this scenario UPS is getting a piece of everything AND the customer is saving money because we understand transportation and we have squeezed every penny of cost savings out of the supply chain.

We are doing this today but it is mostly for large customers like Dell. But what if we could get this down so well that that we could do this for any customer of any size? UPS is no longer part of the supply chain, WE ARE THE SUPPLY CHAIN. Right now, no company is really set up to totally take the supply chain away from customers. But if a company was to be the 1st to be able to demonstrate that this is a typical offering, that company would be the market leader in a $3 TRILLION market place Total Supply Chain Management.

 

[racerx]

But can we do it? Can we stop managing by numbers and stop worrying about what Wall Street thinks long enough to implement this program across the board? Do we have the right upper management in place to take this vision and make it a reality? Can we find a way to continue to support unionized labor but still have enough flexibility to react to sudden market changes? Can the organization accept a slow migration away from focus on small package and embrace a larger vision that will cause everyone to have to move out of their comfort zone? And finally, can we complete a total integration of all of these components and get to the point where UPS is the premier Supply Chain Company as we have been the premier small package company for decades?

These questions and many more, are what will keep me up at night for a long time to come.

 

[rushfan]

Diversifcation has been a boon for our business. Supply Chain Solutions is just one.
Nikon uses us. I deliver to a camera store warehouse and just this week delivered about 100 pieces from "Outer Loop Road" in Louisville Ky. The warehouse worker was impressed when I explained to him UPS picked up the items from Japan, warehouses the product in Louisville 'till he needs them.

Another place I deliver to is an electrical supply store for electricians. Every end of the month, I deliver about 45 pieces, again from "outer loop".
There are many other examples, but don't want to bore you all with them.

So in a nutshell, I feel ups will survive.

 

[ddomino]

Rush, you are so right. I see so many pkgs with the outer loop Louisville KY. I to know we have a piece of that pie. I think sprint is also one. They use 2nd day air asd labels to return bad cell phones. wwwFlowers.com or www.1800flowers.com uses this same service at valentines day and mothers day. We (UPS) warehouse roses and when an order is placed we pick a prepackaged dozen roses ship it next day or saver and put it into the system in Louisville. Not only do we make the money on SCS and shipping, we save on the first leg to Louisville. We don't need to waste space on inbound flights. It starts in Louisville.

Labor costs are not only about hourly or union employees. Management employees also are paid for the work (labor) they do. Everytime I get a mailing that addresses labor costs it seems only to talk about the union employees. Never are we told what a center manager, del sup, HR person, twi sup, preload manager, div mgr, etc... are making per month or year, not to mention their stock bonus. We as Teamsters need to demand that are pay or bonus is tied to the profit of the company. It was proposed in 97 but never presented to rank and file. Strickly because, in my opinion, the union whould come out on the short end. Only through hourly raises do they get a cut. A rule they broke when it became 2 hours plus $1 for the strike fund then another temporary $11 for the strike fund that we still pay.

When everyone from CEO to par-time whatever has the same stake in the profit, will everyone then be working toward a single goal. When both sides feel the other is taking advantage, the goal becomes clouded. We are all on the side of UPS making money. Where we differ is how the money pie is divided up. For most like me, hourly union, we feel management takes more than their share. If UPS offered no raise in rates and a hold on saleries, how many would be for it? I don't know that I would, because that would become a burden on me. Not able to keep the same standard of living because everything else was on the rise.

 

[wkmac]

Excellent posts everyone and these issues IMO are must reads/must discuss for all UPSers.

RacerX, your questions concerning the ability of upper management making the focus on numbers, etc. are dead on IMO. UPS has many positives but I've lost tons of confidence in this company not only as an employee but also an investor because of it's management and what I believe is a lack of focus to the core job of this company. To break it down further to the functional level, from my view, a total lack of knowing what is really happening out there with the world they are responsible for is a huge problem. The basics of just knowing the jobs themselves of what you are supervising from my seat on the bus I really don't see that at all!

 

[worldwide]

susiedriver,

I think a comparision with the airlines is very appropriate; after all it is UPS Airlines that flies the cargo. It does not mater what the cargo is (people or boxes). What is the cost to fly an Airbus from point A to point B. The primary variables are the cost of fuel and the cost of labor. Can UPS pay less than the airlines for fuel due to their AAA credit rating? Of course-that is one of the benefits of being a well run company that is fiscally prudent. Both passenger and freight airlines use similar ground support operations so their is not a lot of differences there.

Perhaps the real problem with the airline industry is that there are simply too many carriers that operate inefficient networks. Southwest and other "low cost" airlines have shown that you can make consistent profits hauling people. Look at the major carriers in Chapter 11-they have not adopted and changed with the times and changing business models and are now paying the price.

"Personally I dont know why UPS doesnt just settle with the IPA. Pony up, and be done with it."

So whatever the IPA wants, UPS should simply give to them? As a shareholder, UPS has a responsibiliy to me and all of the other shareholders to negotiate a contract that allows the company to have the flexibility to operate efficiently and make a profit. I'm not privy to the negotiations but it seems the major sticking points are pay related. I can only interpret that to mean that what the IPA is asking for would not be in the best long-term interests of the company and the shareholders.

 

[susiedriver]

worldwide,
I think you miss the point... I stated Can you tell me what the price differential would be between flying, say 150 passengers and their luggage from New York to LA at $200 a head and filling that same plane to capacity with air freight?

I don't know what the weight capacity is of an Airbus is, but I do know that I can carry a couple dozen NDA letters on my lap. The rate for a non-discounted NDA letter from NY to LA is $18.50. I would think that an Airbus filled with frieght would turn significantly more profit than an Airbus filled with people, and immediately you eliminate flight attendants from the labor costs, as well.

If this doesn't make sense, let me know where my reasoning is off.

I am not privy to the IPA negotiations either. Money is always a sticking point in any labor negotiation, however it is my understanding that outsourcing and SCOPE are major hurdles. The pilots are a very tight knnit group, and disgruntled pilots cost me, a shareholder, quite a bit more money than a driver who is over an hour a day. Any idea what it costs to replace the brakes on an Airbus?

 

[air_upser]

Thanks for everyones input and opinions so far. All of you have made excellent points. While our fuel costs have risen, so has our competitions, so thats mute point. Both management and labor has seen a reduction in their take home pay. With the increases in insurance, taxes, gas, and utilities the past 3 years, Ive actually seen a reduction in pay myself. Simply getting a bigger increase is not necessarily the answer. Hopefully our Government will get gas prices, healthcare costs, and taxes under control. How UPS and the Teamsters work that out in 2007 is anybodys guess. Im all for profit-sharing but there are so many details to workout. What percentage does each job description get? How do years of service be reflected? What if there is no profit? Etc etc. And how would that all tie in with individual performance?
I also agree we are looking at numbers too much. Ive seen this before and the outcome was not pretty. It takes managers with some spine to stand up for whats right for the business and the customer.

So Clever, have you been turning down sup positions? I wouldnt judge a person on their posts to a website, but my first impression is you would make a good one.

 

[ok2bclever]

Air, yes, I have been recruited my entire career.

The last conversation I had involving this was with a center manager I really respected (he retired a multi-millionare a year after the stock went public and now wears blue jeans a lot and really seems happy and laid back for the first time in his life)pretty much sums it up.

He had been really pushing on the subject and he asked me what was the main problem I had with going into management.

I told him it was the rootlessness.

He said, "you think we are ruthless?"

And I said, "That too."

No offense to managers here, but I have always had a problem obeying authority that wasn't right and also doing anything I didn't think was right.

It's hard to keep your job in management with those two tendencies in my opinion.

I also have always really loved my wife.

I started dating her the year prior to going full-time and we are still married which is another rarity in supervision.

We all have priorities and money was never at the top of mine and I didn't see anything supervision could offer me beyond that at costs too great.

 

[air_upser]

You have my respect clever and I'm sure you are a leader to the younger guys in your center. Management included!
This is the delemna for UPS, and another problem for our future- management recruiting. UPS needs good managers but good managers don't want to work for UPS.

Luckily, I'm in a little different situation than the package operation. We put in the hours, but also get the time off whenever we need it. There is give and take in our department, and our managers take care of the people who take care of the business....and stresses life outside of UPS.

 

[tieguy]

"No offense to managers here, but I have always had a problem obeying authority that wasn't right and also doing anything I didn't think was right."

interesting. Therefore we can assume you have never had to do anything you did not think was right in your current management position with the union?

 

[air_upser]

Not sure that was called for tie, but apparently there is bad blood between you two.

Back on topic.....

Wait DJ won today!!!!

OK, back on topic.

I think everyone agrees that SCS and diversification is good for the future of UPS. SCS is non-union. Every year I see teamsters outside some of the SCS warehouses in Louisville trying to organization. So far, employees have resisted. Whether or not they join the union will not have an impact on our future profitibility, however, the ability of SCS and UPS employees to work together may. I know in the new cartage facility they are geographically seperating union operations from non-union operations. The non-union carriers that come in won't even be able to use the same bathroom as UPS employees. At some point, that's going to us. Now you can say UPS is keeping the union away to stop recruiting efforts or on the other hand, keeping non-union drivers free of the union pressure and dirty looks. Whatever the reason, it would be better to work together.

 

[ok2bclever]

For the same reasons that I wouldn't go into management I wouldn't go into Teamster management and yes I have been recruited actively there for over seventeen years, by three different regimes.

The current regime actually consists of a decent bunch of people, but there would still be issues that I would consider compromises I wouldn't be willing to accept.

I am the steward, period.

I turned down personal requests to become the steward by the head of the local union three times.

In a meeting that was for another reason the membership nominated me (we had three stewards previous to that and all three of them wanted out of the job).

I told the members and the hall that I would take the position with one reservation.

I would represent them to the best of my abilities, but would do nothing I did not feel was right.

The day they thought I wasn't doing the job or needed the stewart to do something I did not feel was right would be the day they would need to fill the position again.

Since that time I offered my resignation once when I was instructed to do something that crossed my ethical line.

The hall decided they'd rather retain me as steward.

Those are still and always will be the parameters I will steward under.

I will represent the membership and uphold the contract, but I do not defend dishonest employees or do anything that I personally consider unethical.

I realize there are those on both sides of the fence who do not understand the difference between represent and defend which is why I will only perform the job on my own terms.

So no, I will never be in union management tie anymore than in UPS corporate management, for the same reasons.

 

[ok2bclever]

Air,

The Teamsters going after UPS's non-union membership in their new subsidiary is very valid, the union has stated that is their goal.

Separate facilities might slightly hamper a union drive, but would certainly not stop such a drive.

I don't think anything short of legitimate job viability threats is likely to prevent it's ultimate success.

The union on the other hand has a valid concern that UPS may try to transfer business now done by Teamsters to their non-union subsidiary.

It is an old ploy and I remember hearing the term "shiny wheels" even back in the 70's.

As all those companies that played those games are out of business and their employees moved on so it would not be beneficial for either side in my opinion.

Regardless, hopefully cooler heads will perservere and this can all be worked out to the profit of the corporation and the employees.

 

[air_upser]

Agreed clever. As I stated in one of my first posts on this board, I am not anti-union. People get taken advantage of in all walks of life, and a union is something that help when its a company or idiot manager.
My three main problems with unions are:
1. Representation of employees that don't deserve it. The ones that don't work, screw off, whatever. The team is not stronger keeping them around and shouldn't be protected simply because they are a "brother or sister".
2. Work rules. I'd say the problem doesn't exist at UPS, but in constuction, especially in the northeast, you better not do anything that makes others look bad, like carrying more than one set of blinds up the stairs. True story.
3. Contract negotiations and salaries. Everyone at UPS makes a good wage and has good benefits. Heck, there's a waiting list to become a UPS driver. Maybe I'm off base here, but why can't the union accept increases based on the cost of living? My impression is at every contract the union tries to get more than what it really needs. Maybe the company is the same way, I'm really not sure. What are the issues for 2007? Cost of living increase and better rules as far as work hours goes in turn for more flexibility for the company. Signed early. Benefits will probably be big too. We just learned of changes for 2006....more coming out of my pocket.
Anyway, we all need to work better together and that would probably solve a lot of the issues. As always, thanks for you insight!