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Wednesday, October 31, 2012

Is UPS in Financial Trouble?

When you own a small ebay business, the cost of shipping out items can make or break your business. Many sellers on ebay offer free shipping to entice buyers. Others continue to require buyers to pay for shipping. Either way, someone has to pay the high cost of shipping. So, the smart seller is going to choose the shipping option that saves them the most money if they offer free shipping to their buyers.

It most cases, the United States Postal Service (USPS) offers cheaper shipping rates than United Parcel Service (UPS). For example, to ship a collectible vase weighing 2-3 pounds from Tampa to Arkansas by USPS Express Mail costs $27.96. However, to ship the same item the same distance using UPS Next Day Air costs $100.39. Both services offer overnight delivery, but the price difference is huge.

International shipping costs through UPS are completely outrageous. For the sake of comparison, that same collectible vase costs $189.26 to ship through UPS Worldwide Expedited (average 5 day delivery) from the US to France. Whereas, the cost of shipping it through USPS Priority Mail International (average 6-7 day delivery) is $37.15.

It makes one wonder why the difference? UPS was established in 1907, and the company's website claims that UPS is the world's largest package delivery company and a leading global provider of specialized transportation and logistics services. According to their 2011 Annual Financial Report, it appears that revenue was up by 30 billion over 2010. You'd think that the largest delivery company would be able to offer competitive rates to their customers, but the facts seem to show differently.

One US postal employee in Florida was quoted as saying that "UPS simply doesn't want much international shipping business" when asked why they thought that UPS international rates were so expensive. A different US postal employee in the same state was quoted as saying the following when asked about the difference in pricing, "Well, you didn't hear it from me, but UPS is one of our biggest customers right now. If you were to walk around to the back of our facility, you would see several package bins full of UPS packages."

In support of this theory, a recent comment from Kurt Kuehn, UPS's Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer states, "I think anytime a competitor pulls back capacity and access, it's an opportunity...the more dramatic their network changes, then the more opportunity. At the same time, we'll look for collaboration alternatives as the post office looks to outsource some parts of their network, maybe where they're not best-in-class, so it's a balancing of competing and cooperating."

Wait a minute, let's get this straight. If this comment is understood correctly, then UPS charges customers $100 to ship a package and then they send it over to USPS for $27? That's collaborating by their definition. Can that be possible? Maybe UPS is not in financial trouble, because that sounds like a pretty shrewd business practice. It appears that they might be making $75 on each comparable package without having to pay the cost of trucking and flights required normally to send a package. But, is it ethical? That's for you to decide.

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