Express services

UPS Mulling Move to Dispatch European Rivals

Earns UPS
"Big brown" is on the war path.
  • Why it matters

    Why it matters

    UPS is second in the European express market, but Fedex/TNT is breathing down its neck and retail giant Amazon has been eating into its revenues by moving into the courier business.

  • Facts

    Facts

    • UPS has a 25 percent share of the European express delivery market.
    • The firm could launch its freight brokerage system Coyote in Europe to boost its capacities.
    • It has launched a €2 billion investment program for Europe, and its German operation is one of the main beneficiaries.
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    Audio

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U.S. courier giant Fedex has come close to catching up with its rival UPS in the European express delivery market since its acquisition of Dutch firm TNT for €4.4 billion in June.

Fedex/TNT, which has said it is committed to growing its business through the merger, is just three percentage points behind UPS. If the firm delivers that growth, UPS could be relegated to third spot in Europe.

UPS, dubbed “Big Brown” because of its company colors, is currently second in the European international express market with a 25-percent market share, behind Germany-based DHL, a part of mail and logistics giant Deutsche Post.

But it could strike back against the threat from Fedex/TNT by introducing the freight brokerage operations of subsidiary Coyote Logistics, acquired by UPS 12 months ago, into Europe.

UPS needs to return to growth after its revenues stagnated at around $58 billion.

Coyote doesn’t have its own trucks. Instead, it pairs retailers and manufacturers with truckers, selling 6,000 truck capacities per day with the help of 35,000 haulage partners that offer their trucks at short notice.

“We’re checking how we can transfer the system to Europe,” said Frank Sportolari, president of UPS Germany, the company’s biggest foreign subsidiary accounting for a quarter of its $12.8 billion (€11.3 billion) foreign revenue.

Coyote would enable UPS to make more efficient use of its 3,000 European trucks and to hire external capacity.

He said Coyote would put UPS in a stronger position than Fedex and TNT which now faced the arduous task of merging their delivery networks. “It’s an opportunity for us to win customers,” said Mr. Sportolari. That assessment is shared by German competitor DHL.

Technology consultant Evan Tarver said Coyote would enable UPS to significantly expand its capacity in peak demand periods. “It means there’s unlikely to be a repeat of a debacle like Christmas 2013 when parcels were stuck for days,” he said. In 2013, UPS was overwhelmed by a high volume of parcels delaying the arrival of Christmas presents around the globe.

With Coyote, UPS should be able to strengthen its business with online giant Amazon. The retailer responded to the problems in late 2013 by deciding to forge into the logistics business itself — a decision that has been felt by other European delivery services such as Royal Mail in Britain and DHL. Amazon has recently started delivering some of its parcels in Britain and in German cities such as Munich and Berlin.

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UPS needs to return to growth after its revenues stagnated at around $58 billion. Amazon has even started attacking its long-standing logistics partner in the air. A few days ago, the retail giant presented its first freight aircraft emblazoned with the brand “Prime Air,” a Boeing 767-300 that it is one of 40 planes Amazon has leased from carriers Atlas Air and Air Transport Services Group.

By securing its own fleet, which may even be enlarged through new acquisitions, Amazon is making itself even more independent of UPS. To be sure, UPS has a global network of almost 4,500 cargo planes, but by taking to the skies Amazon is eating into its revenues.

UPS has responded by launching a €2 billion investment program for Europe, and its German operation is one of the main beneficiaries. The company is spending €80 million to expand its 30-year-old hub in Herne, western Germany, to speed up operations there. Some €40 million has been earmarked for a freight depot in Nuremburg, southern Germany, to improve transport to eastern Europe.

The company’s biggest investment outside the United States has been the logistics hub at Cologne-Bonn airport, its most important hub alongside Louisville airport in Kentucky and Shenzhen in China. UPS secured night-flying rights until 2030 for Cologne-Bonn and invested €200 million in its expansion there. It employs 2,700 people at the airport and 38 of its planes take off from there each day.

UPS is also investing heavily in “last mile delivery,” determined not to cede the lucrative business of delivering e-commerce parcels to rivals DHL and Fedex/TNT.

Mr. Sportolari said UPS had increased to 3,000 the number of parcel shops in Germany, where packages can be delivered and picked up until 8 p.m. Globally, there will be 25,000 such sites by the end of the year. It doesn’t own the locations — they are gas stations or news agents equipped to process deliveries. UPS has launched an online tracking system called “My Choice“ to keep customers informed about where their parcels are.

The company declined to reveal how much it earns in Germany, where it made heavy losses in its first years after setting up there in 1976. Globally, the group achieved an operating margin of 13.3 percent in 2015, which was three times higher than that of Deutsche Post, the owner of DHL.

UPS drivers are well paid and can earn up to €4,000 per month before tax. For that, the company insists that its drivers look presentable in their trademark brown uniforms with shorts — beards are frowned on, and face piercings are taboo. “Our drivers must be able to walk in the front door of Tiffany’s or jewellery store Wempe on Düsseldorf’s Königsallee without being conspicuous,” said Mr. Sportolari. “Sandals in white socks are out.”

That distinguishes UPS from rivals such as Hermes or GLS which can’t enforce dress codes because the drivers are all employed by subcontractors. Some 3,000 of “Big Brown’s” 5,000 drivers in Germany are on the books of its German head office in the western city of Neuss. While subcontractors of Hermes or GLS often only pay their drivers the minimum wage of €8.50 per hour, UPS pays twice that much. Only DHL drivers, who still have an old labor contract from Deutsche Post, get more.

The UPS drivers receive tuition at a training center at Cologne-Bonn airport according to a program developed by the elite Massachusetts Institute of Technology. That’s where they learn to handle the brown delivery trucks built to exact UPS specifications by automakers Mercedes and Iveco.

Staff turnover is low, which together with the uniforms reinforces the impression that UPS drivers form a close-knit community. Those short trousers have attained cult status. “Many even wear them in the winter,” said Mr. Sportolari.

 

Christoph Schlautmann covers the logistics and waste management sectors for Handelsblatt. To contact the author: schlautmann@handelsblatt.com

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