UPS hurls near-blizzard of new services at market ahead of Q4 results

UPS Inc. (NYSE:UPS) late Wednesday unveiled a slew of product and service launches that include the building of a package-sortation “super-hub” in Harrisburg, Pennsylvania; expanded weekend pickups and deliveries; the purchase of 10,000 electric vehicles from U.K. manufacturer Arrival; and an autonomous vehicle operation in Arizona in conjunction with software developer Waymo LLC. 

In addition, Atlanta-based UPS said it has broadened its program for late pickups to reach 98% of the U.S. population, up from 85% when the program, known as “extended hours,” began in mid-2019. UPS has added about 1,500 stores managed by Package Express Centers, which oversees a network of independent retailers, to its pickup and drop-off network. UPS rolled out a suite of digital tools to simplify international e-commerce compliance and embedded the Square Online Store, a popular e-payment site for merchants, into a digital access program that will give Square merchants access to UPS services.

UPS also disclosed that its commercial drone subsidiary, Flight Forward, will begin service next month within the University of California San Diego Health system. The unit, which has federal government authority to provide virtually unlimited commercial drone service, already serves residences in conjunction with health care providers and operates across medical campuses.

The company will expand its visibility and tracking service, known as My Choice, to businesses in 30 countries and territories in Europe, the Americas and Asia Pacific. My Choice, which effectively allows consignees to manage their package deliveries, was first made available to residential customers but was expanded to U.S. businesses last year. This is the first international offering of the product’s business version.

Much of the expansion is targeting the small to midsize business segment, a long-underserved market that UPS, rival FedEx Corp. (NYSE:FDX) and others believe is ripe for provider penetration. Smaller shippers want to capitalize on opportunities afforded by e-commerce but typically lack the internal resources to offer such a broad scope of services on their own. Providers consider smaller businesses to be higher-margin candidates because they lack the volume and transportation spend of much larger customers.

Of the many moving parts in UPS’ announcement, perhaps the expansion of the company’s U.S. “super-hub” network carries the biggest heft. The Harrisburg hub, expected to open sometime next year, will be the sixth such facility and will be known as the Northeast Regional Hub. In addition, UPS plans to add what it calls “highly automated” package operations in nearby Carlisle, Lehigh Valley and Philadelphia, at a cost — including the Harrisburg hub — of $1.4 billion. The facilities will sit in the highly industrialized central Pennsylvania corridor, home of seemingly endless distribution centers and surrounded by five major markets: New York City, Baltimore, Washington, D.C., Philadelphia and Pittsburgh.

The Pennsylvania project is part of an initiative to add more than 5 million square feet of highly automated processing capacity worldwide this year, UPS said.

The goal of the super hubs and automated package facilities is to increase throughput by about 30% to 35% over traditional hubs through highly advanced automation. The overall expansion is projected to add 350,000 to 400,000 pieces per hour of sortation capacity in the U.S. each year between 2018 and 2020. By the time the project is completed in 2022, all of the company’s “eligible” U.S. volume will move through highly automated hubs, up from 50% in December 2018, UPS said.

UPS said it plans to bring 20 of these automated facilities online during 2020, either by building new complexes or rebuilding existing ones. It delivers about 20.7 million packages each day across its global network. That doesn’t include the peak holiday period when daily volumes swell considerably.

The AV pilot program calls for packages to be picked up on a regularly scheduled basis from an unspecified UPS Store retail location in Arizona and will be delivered to a nearby sortation hub, the company said. The expanded weekend deliveries are expected to reach an additional 40 million U.S. consumers with Saturday service, UPS said. In addition, UPS will make Sunday business pickups and residential deliveries available on a contract basis, it said.

Wednesday’s announcement comes one day before the company releases its fourth-quarter and full-year 2019 financial results. This marks the third consecutive quarter that UPS has disclosed significant product and service changes the day before its release of quarterly results.