United Parcel Service of America Inc. History

Address:

400 Perimeter Center Terraces North
Atlanta, Georgia 30346
U.S.A.

Telephone: (404) 913-6000
Fax: (404) 913-6593

Private Company
Founded: 1907 as American Messenger Co.
Employees: 335,000
Sales: $21 billion (1995)
SICs: 4215 Courier Services Except by Air; 4513 Air Courier Services

Company Perspectives:

Corporate Mission Statement. Customers: Serve the ongoing package distribution needs of our customers worldwide and provide other services that enhance customer relationships and complement our position as the foremost provider of package distribution services, offering high quality and excellent value in every service. People: Be a well-regarded employer that is mindful of the well-being of our people, allowing them to develop their individual capabilities in an impartial, challenging, rewarding and cooperative environment and offering them the opportunity for career advancement. Shareowners: Maintain a financially strong, employee-owned company earning a reasonable profit, providing long-term competitive returns to our shareowners. Communities: Build on the legacy of our company's reputation as a responsible corporate citizen whose well-being is in the public interest and whose people are respected for their performance and integrity.

Company History:

Known in the industry as "Big Brown," United Parcel Service of America Inc. (UPS) is the world's largest package-delivery company. The Atlanta-based business delivered more than three billion items throughout more than 200 countries and territories in 1995. In addition to its fleet of 147,000 vehicles, the company operates one of the world's top ten airlines by virtue of its more than 500 company-owned and chartered aircraft. Under the direction of CEO Kent C. Nelson in the late 1980s and early 1990s, UPS strove mightily to maintain its dominant position in parcel post and insinuate itself throughout the world.

Roots in the Early 20th Century

UPS was founded in 1907 in Seattle, Washington, by 19-year-old Jim Casey as a six-bicycle messenger service. He set the future tone of the company by mandating that it be employee-owned. Casey delivered telegraph messages and hot lunches and sometimes took odd jobs to keep his struggling business going. By 1913 UPS consisted of seven motorcycles. With Casey's tacit approval, UPS drivers joined the International Brotherhood of Teamsters in 1916. In 1918 three Seattle department stores hired the service to deliver merchandise to purchasers on the day of the purchase. Department store deliveries remained the center of UPS's business until the late 1940s.

In 1929 UPS began air delivery through a new division, United Air Express, which put packages onto passenger planes. The Great Depression ended plans for an overnight air service, and UPS terminated United Air Express in 1931; the company did not resume air service until the 1950s. In the late 1940s the urban department stores that UPS serviced began following their clients to the new suburbs. More people owned cars and picked up their own parcels. UPS's revenue declined.

Casey decided to change direction and expand the common-carrier parcel business, picking up parcels from anyone and taking them to anyone else, charging a fixed rate per parcel. The company's initial customers were primarily industrial and commercial shippers, although the firm also serviced consumers. The company had offered common-carrier service in Los Angeles since 1922, and in 1953 UPS extended it to San Francisco, Chicago, and New York. UPS delivered any package meeting weight and size requirements to any location within 150 miles of these bases. After this initial expansion, UPS frequently appeared before the Interstate Commerce Commission (ICC) to expand its operating rights.

UPS scaled its operations to fit its market niche, refusing packages weighing more than 50 pounds or with a combined length and width of more than 108 inches, limitations that would increase in concert with the company's capabilities. Its average package weighed about ten pounds and was roughly the size of a briefcase, making sorting and carrying easy. UPS competed with scores of regional firms but most had not limited the size and weight of their packages. They ended up with the heavier packages, higher overheads, and lower volumes.

A New Generation of Leadership for the 1960s

Casey resigned as chief executive officer in 1962 and was succeeded by George D. Smith. UPS more than doubled its sales and profits between 1964 and 1969, when the company made $31.9 million on sales of about $548 million. The company remained privately owned, its stock held by several hundred of its executives. UPS in 1969 served 31 states on the east and west coasts. It had just gotten ICC approval to add nine Midwestern states and soon got approval for three more states. Only the lightly populated states of Arizona, Alaska, Hawaii, Idaho, Montana, Nevada, and Utah were without UPS service. The firm kept a low profile, avoiding publicity, and refusing interviews of its chief executives. UPS officials believed only one parcel shipping company could exist in the United States, and it hoped that keeping a low profile would prevent anyone from copying its methods.

The firm's secrecy policy was possible because it was closely held. Its 3,700 stockholders (a number raised to 23,000 by 1991) were its own top and middle managers and their families. Stockholders wanting to sell sold their stock back to the company. Because management owned UPS, the company could make long-range plans without the pressure for instant profits faced by many publicly owned firms. Most managers started as UPS drivers or sorters and came up through the ranks, creating great loyalty. The company's management structure was relatively informal, stressing partnership and the involvement of management at all levels.

In 1970 Congress considered a reform of the U.S. Postal Service that would allow it to subsidize its parcel post operations with profits from its first-class mail. This would allow it to lower prices and compete more directly with UPS. UPS hired a public relations firm and for the first time officially announced its earnings, trying to build a case that it was an integral part of the U.S. economy and that the postal reform would be disruptive. UPS handled 500 million packages in 1969, for 165,000 regular customers. The company claimed that 95 percent of all deliveries within 150 miles were delivered overnight. The company centered operations around a five-day-a-week cycle. Drivers made deliveries in the morning, made pickups in the afternoon, and returned to operations centers around 6:00 PM. Their packages were immediately sorted and transferred for delivery.

UPS trucks are painted brown to avoid showing soil and are cleaned every night. Trucks are assigned to specific drivers, who the company treats as future managers and owners. The company had 22,000 drivers in 1969, and most were kept on the same route to develop a relationship with customers. Some drivers, however, found UPS management inflexible, resulting in occasional local strikes.

In 1976 UPS tried to replace, gradually, all of its full-time employees who sorted and handled packages at warehouses with part-time workers. Teamsters locals in the South, Midwest, and West accepted the idea, but 17,000 UPS employees from Maine to South Carolina went on strike. The strike caused chaos for east coast retailers as their suppliers were forced to send Christmas goods through the overburdened U.S. Postal Service. UPS eventually reached agreement with the Teamsters, but its labor relations continued to be spotty. Because management owned the business, it tended to drive its employees hard, and many drivers complained of the long hours and hard work. To maximize driver performance, the company kept records of the production of every driver and sorter and compared them to its performance projections. Drivers' routes were timed in great detail.

In 1976 UPS launched service in Germany with 120 delivery vans. It quickly ran into trouble because of cultural and language differences. UPS eventually adapted by hiring some German managers and accepting the German dislike of working overtime. George C. Lamb Jr. succeeded Harold Oberkotter as UPS chairman in 1980.

Competition Intensifies in 1980s

UPS continued to grow rapidly, aided by trucking deregulation in 1980. By 1980 UPS earned $189 million on revenues of $4 billion, shipping 1.5 billion packages. Federal Express Corporation, however, which began operations in 1973, was siphoning off a growing amount of UPS's business. Federal shipped packages overnight by air, and many businesses began shipping high-priority packages with Federal. UPS had the resources to challenge Federal, but it meant taking on significant debt, something the conservatively run UPS was reluctant to do. In 1981 it had only $7 million in long-term debt and a net worth of $750 million. To compete with Federal, UPS bought nine used 727 airplanes in 1981 from Braniff Airlines for $28 million. It opened an air hub in Louisville, Kentucky, but was hesitant about directly challenging Federal because of the huge cost of building an air fleet. It decided to stick with two-day delivery rather than overnight delivery, hoping that many businesses would be willing to let packages take an extra day if it meant savings of up to 70 percent. It called its two-day delivery Blue Label Air and spent $1 million in 1981 to promote it--a large sum for UPS, which had rarely advertised. In 1982 UPS ran its first-ever television ads, trying to convince executives that two-day service was fast enough for most packages.

The recession of the early 1980s helped UPS because many companies shifted to smaller inventories, shipping smaller lots more frequently and demanding greater reliability. Package volume grew by six percent in 1981. Because of the recession, the Teamsters accepted a contract in 1982 that limited wage increases to a cost-of-living adjustment, which then was diverted to pay the increased cost of medical benefits. When UPS then released information showing its net income rose 74 percent in 1981, labor relations worsened. Bitterness continued between UPS management and drivers as company profits swelled 48 percent to $490 million in 1983. UPS and the Teamsters secretly negotiated for two months in 1984 and reached a three-year agreement providing for bonuses and increased wages. The move averted a probable strike by 90,000 employees. Despite this labor tension, UPS's employee turnover remained remarkably low at four percent. Many workers were recruited as part-time employees while college students and were offered full-time positions after graduation.

In 1982 UPS decided to offer overnight air service, charging about half of Federal's rate. By 1983 its second-day and next-day services were shipping a combined 140,000 packages a day. In 1982 UPS earned $332 million on $5.2 billion in sales. It had a fleet of more than 62,000 trucks. Mail-order firms and catalog houses were the fastest growing part of UPS's business. Jack Rogers became UPS chairman in 1984.

Despite labor troubles, a Fortune survey found UPS's reputation the highest in its industry every year from 1984 to 1991. It was by far the most profitable U.S. transportation company, making more than $700 million in 1987 on revenue of $10 billion. Federal Express, however, had 57 percent of the rapidly growing overnight package business; UPS had only 15 percent. Federal was highly automated and used electronics to track packages en route and to perform other services. UPS still did most jobs manually, but was rapidly switching to the use of electronic scanners at its sorting centers and to computers on its trucks. UPS introduced technology methodically, buying a software firm and a computer design shop to create the necessary equipment. It then field-tested its new gear at a 35-car messenger service it owned in Los Angeles. It launched a $1.5 billion five-year computerization project, trying to create a system that tracked packages door-to-door, which Federal was doing already. UPS's healthy river of cash flow enabled it to pay $1.8 billion for 110 aircraft in 1987. The purchase made it the tenth-largest U.S. airline. The company launched its first wide-range television advertising campaign in 1988, spending $35 million to publicize the slogan, "We run the tightest ship in the shipping business." Despite these expenses, the company still had only $114 million in long-term debt and continued to finance large projects out of its cash flow.

By 1988 UPS's ground service was growing by seven percent to eight percent per year, and air service was growing by 30 percent per year. UPS handled 2.3 billion packages per year, compared with 1.4 billion for the U.S. Postal Service. The 300-plane fleet of the UPS overnight service handled 600,000 parcels and documents per day, making $350 million on $2.2 billion in sales in 1988. UPS continued building an overseas air network, but in West Germany, where it had 6,000 employees, it delivered only on the ground. The company shipped eight million packages overseas in 1988, losing $20 million in the process. UPS bought its Italian partner, Alimondo, in 1988, hoping to use it and its German base to expand through Europe. The company also bought nine small European courier companies to expand air service. Its overseas acquisitions cost UPS less than $100 million. UPS and rival Federal Express both were losing money on overseas operations, but UPS had an advantage: Federal could not match its $6.5 billion in assets and $480 million in cash with minimal debt. UPS hoped this would give it greater staying power as the two companies struggled to build a global delivery network. Meanwhile, UPS slowly won some Federal customers by giving volume discounts, which it previously had refused to do. The overseas shipping war escalated as Federal bought Tiger International, Inc., a major international shipper that UPS used for some of its foreign deliveries.

New Leadership Invigorates 1990s

Kent C. Nelson succeeded Jack Rogers as chairman and CEO in 1989. Nicknamed "Oz" for 1940s-era band leader Ozzie Nelson, the 52-year-old had spent his entire working life at UPS, starting with the company only two days after graduating from college. The new leader undertook a gradual, but complete transformation of UPS that extended from its innermost workings to its public image.

Challenged by competitors large and small, UPS launched a plethora of new services in the early 1990s. These ranged from timed and same-day deliveries to less expensive two- and three-day services. The company's Worldwide Logistics subsidiary offered clients everything from inventory management to warehousing and, of course, delivery. Powerful and costly technical systems, often developed internally by a 4,000-member staff, backed up these expanded operations. UPS's DIAD (delivery information acquisition device), for example, combined a barcode scanner, electronic signature capture, and cellular tracking network in a single handheld tool. By 1992, the corporation was investing more money in computers than in ubiquitous brown vehicles. These internal changes reflected the company's traditional focus on super-efficiency as well as its newfound emphasis on customer satisfaction.

In contrast to its secretive early years, the UPS of the 1990s was a bold global marketer. The company embarked on the largest advertising campaign in its history in 1996, spending an estimated $100 million in conjunction with its sponsorship of the Centennial Olympics held in Atlanta, Georgia (which, not coincidentally, had become UPS's headquarters in 1991). UPS hoped that the worldwide recognition enjoyed by the Olympic rings would rub off on its brown trucks, which were not well known outside the United States.

That recognition was vital to the success of UPS's international operations, which continued to lose money into the mid-1990s. By 1995, in fact, losses on the company's European assault totaled nearly $1 billion. But backed by its patient and confident employee/stockholders and a hefty bank account, UPS was able to wait out publicly held Federal Express, which had limited its European service to intercontinental deliveries by mid-decade. In stark contrast, UPS had expanded its international network to include 200 countries and territories worldwide. Undaunted by its massive losses, UPS announced plans to invest more than $1 billion in its European operations from 1995 to 2000, and it infused another $130 million into its Asian operations. The company hoped to profit on its piece of the $25 billion European parcel post market by the end of the century.

This global push fueled a 69 percent increase in sales over the course of Kent Nelson's first six years at the helm of UPS. At the same time, however, it played a significant role in the reduction of the company's overall profit margin from eight percent in 1987 to 4.8 percent in 1995. As the company approached its ninetieth anniversary in 1997, it looked forward to reaping the rewards of its global investment.

Principal Subsidiaries: United Parcel Service Co.; United Parcel Service Deutschland Inc.; United Parcel Service General Services Co.; UPS Customhouse Brokerage, Inc.; UPS International General Services Co.; UPS International, Inc.; UPS Truck Leasing, Inc.; UPS Worldwide Forwarding, Inc.; UPS Worldwide Logistics, Inc.; UPICO Corp.; UPS Aviation Services, Inc.; Diversified Trimodal, Inc.; Merchants Parcel Delivery; Trailer Conditioners, Inc.; II Morrow, Inc.; Red Arrow Bonded Messenger Corp.; UPS Air Leasing, Inc.; Roadnet Technologies, Inc.; UPS Telecommunications, Inc.; UPS Properties, Inc.; UPINSCO, Inc.; Sonic Air, Inc.; Velleb, Inc.; ADI Realty Co.; Alko Corp.; Bardale Co.; Basplas Corp.; Brastock Corp.; Brookind Corp.; Buckroe Corp.; Burdence Corp.; Chasreal, Inc.; Cleve Co.; Cova Corp.; Dakkel Corp.; Dalho Corp.; Darico, Inc.; Daven Corp.; Deerfield Corp.; Denado Corp.; Dullesport Corp.; Edison Corp.; Elsil Corp.; Evind Corp.; Fardak Corp.; Galanta Co.; Kylou, Inc.; Labar Corp.; United Parcel Service Pty. Ltd. (Australia); UPS Pty. Ltd. (Australia); United Parcel Service Speditionsgesellschaft Mbh (Austria); UPS Transport Gmbh (Austria); United Parcel Service (Bahrain) Wll; United Parcel Service (Belgium) NV; United Parcel Service (Bermuda) Ltd.; UPS Do Brasil & Cia; United Parcel Service Canada Ltd.; United Parcel Service Cayman Islands Ltd.; UPS De San Jose, SA (Costa Rica); UPS Denmark AS; United Parcel Service Finland Oy; United Parcel Service France Snc; Prost-Transports SA Speditionsgesellschaft mbH (Germany); United Parcel Service Deutschland Inc. (Germany); UPS Air Cargo Service Gmbh (Germany); UPS Grundstuecksverwaltungs Gmbh (Germany); UPS Transport Gmbh (Germany); UPS Transport Gmbh II (Germany); UPS Worldwide Logistics Gmbh (Germany); UPS Parcel Delivery Service Ltd. (Hong Kong); United Parcel Service Cstc Ireland Ltd.; United Parcel Service of Ireland Ltd.; United Parcel Service Italia, Srl; United Parcel Service Co. (Japan); UPS Japan Ltd.; UPS Yamato Company, Ltd. (Japan); United Parcel Service Jersey Ltd.; United Parcel Service (M) Sdn. Bhd. (Malaysia); United Parcel Service (Transport) Sdn. Bhd. (Malaysia); United Parcel Service De Mexico, SA de CV; Prost-Transports Nederland BV; United Parcel Service Nederland BV; UPS Norge AS (Norway); UPS of Norway, Inc.; UPS of Portugal, Inc.; United Parcel Service Co. (Singapore); United Parcel Service Singapore Pte Ltd.; United Parcel Service Co. (South Korea); Sociedad Inversora Sanrelman, SA (Spain); United Parcel Service Espana Ltd. Y Compania, Src (Spain); UPS Spain, Sl; United Parcel Service Sweden AB; United Parcel Service (Switzerland); UPS International, Inc. (Taiwan); UPS Parcel Delivery Service Ltd. (Thailand); Atexco (1991) Ltd. (United Kingdom); Atlasair Ltd. (United Kingdom); Carryfast Ltd. (United Kingdom); IML Air Services Group Ltd. (United Kingdom); United Parcel Service of America (United Kingdom); UPS (UK) Ltd. (United Kingdom); UPS Ltd. (United Kingdom); UPS of America Ltd. (United Kingdom).

United Parcel Service of America Inc. History

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