UPS CEO David Abney reveals why the logistics giant hasn't pushed into one of delivery's fastest-growing sectors
- UPS hasn't moved into one of the fastest-growing sectors of e-commerce - at-home furniture deliveries.
- UPS CEO David Abney told Business Insider that part of the reason is because UPS' small package unit is not equipped to process large packages.
- "They want something that fits on a conveyer belt," an analyst told Business Insider of UPS' strategy.
Online orders of furniture was estimated to grow by 18.2% in 2018. That industry - powered by folks who are now comfortable ordering their couches, mattresses, and other furnishings through the internet - is now worth an estimated $50.32 billion.
The sector is obviously a boon for online retailers in the space."Big and bulky" packages also provide a new market for the trucking and logistics companies who can take those goods to your home and build them - UPS, FedEx, XPO Logistics, J.B. Hunt, and the like.
XPO Logistics, the fourth-largest trucking company in the US, has been a player in last-mile big and bulky deliveries for several years. Beyond just dropping a massive box off at the customer's house, XPO offers "white glove services" in which XPO employees carry the good into the home and install it.
"We also made a conscious decision not to treat last-mile deliveries like freight, but rather a personalized service we offer that includes in-home installations," Mario Harik, chief information officer for XPO Logistics, told Business Insider. "If an online shopper expects the delivery of a new oven to be just as seamless as the delivery of a pair of sneakers, we have to help our customers meet those consumer expectations."
Such involvement is naturally more labor-intensive and costly for logistics companies that might be more accustomed to leaving smaller packages in a customer's mailbox or stoop. To provide white glove services, you need two employees in the delivery van, not just one, which jacks up the cost of labor, Zipline Logistics senior business development representative Jesse Juett told Business Insider.
There's also the factor of dealing with massive packages in your supply chain rather than smaller parcels. At a recent retail conference, UPS vice president of advanced technology Bala Ganesh said big and bulky packages, while part of a quickly growing furniture e-commerce sector, "disrupt the flow of packages."
Nevertheless, the past few years have seen FedEx, JB Hunt, Werner, Schneider, and others yet crowd into the last-mile heavy goods delivery sector. "Last mile is likely to grow as more customers gravitate toward buying heavy goods online," XPO's Harik said.
There's one significant name missing from the list - UPS
UPS has notably not made a major push into home furniture deliveries. UPS CEO David Abney told Business Insider that the logistics giant is "still analyzing (the last-mile big and bulky sector) for the right opportunity."
Through UPS Freight, the company delivers large goods from business to business but not private residences, the company told Business Insider.
UPS Freight comprises the company's less-than-truckload sector, where multiple shippers share a truck's space to ship packages. It differs from the company's better-known small-package business, in which drivers deliver one or several packages directly to consumers and businesses.
Read more: UPS CEO David Abney has finally admitted that he sees Amazon as a competitor
"The big thing for us is to make sure we have heavy freight going into the right network," Abney said in an interview. "When online furniture just started building up, we started getting things in small package that should have gone into freight.
"We're focused on UPS Freight handling those large oversized shipments," he added.
It may seem like unneeded detail that UPS would need to separate packages from its small package network versus its freight network, but it's crucial for keeping UPS operations running smoothly.
UPS/YouTubeInside a UPS facility that processes more than 28,000 packages per hour.
During Q4 2018, UPS delivered an average of 21 million packages per day globally. That's significantly more than the 15 million parcels delivered daily by FedEx, the second-largest shipping company in the US.
And before those 21 million packages got to your doorstep, they had to be received, labeled, sorted, and shipped at UPS' 1,800-plus operating facilities. Much of that processing is done via automated technology - nearly 80% will be sorted with UPS' vast array of autonomous scanners and sorters.
Read more: UPS said automated facilities will help sort almost 80% of its packages this year
With that amount of volume and automation, it's important that UPS sorting facilities, which consists mostly of small packages, don't get bogged down by, say, an errant refrigerator or couch.
"They want something that fits on a conveyer belt," Kevin Sterling, managing director of Seaport Global Securities, told Business Insider.
UPS specializes in delivering smaller packages, not your washing machine
Helane Becker, Cowen managing director and senior research analyst, said the choice from UPS to not be involved in last-mile heavy deliveries speaks to the company's difference in strategy from, say, FedEx.
"It's not what they do," Becker told Business Insider. "It's not their core business. UPS has always been a package delivery company and that's always been what they do."