May 2, 2018 / 1:42 PM / 7 months ago

Exclusive: UPS weighs strategy to deliver bulky goods to boost growth

(Reuters) - United Parcel Service Inc (UPS.N) is in talks with at least one U.S. trucking firm to launch an in-home delivery service for large, heavy goods such as couches and treadmills, as the world’s largest package deliverer looks to cash in on one the fastest growing segments of online retail.

FILE PHOTO: Forrest Lampe-Martin unloads packages during a UPS delivery in Seattle, Washington, U.S., November 9, 2017. REUTERS/David Ryder/File Photo

UPS and its rival FedEx Corp (FDX.N) currently deliver parcels up to 150 pounds (68.04 kg) in weight to a person’s door step, and neither carries packages into a person’s home or handles so-called “white glove” services such as product assembly or installation.

UPS told Reuters it is now eyeing the furniture delivery business - one of the fastest-growing segments of online retail - with Amazon.com Inc (AMZN.O), Wayfair Inc (W.N) and other e-commerce companies competing for market share against chains like Crate and Barrel and big-box stores.

A source familiar with the matter said UPS is in talks to hire trucking company Werner Enterprises (WERN.O) to help it compete in this area, potentially by the end of the year. Werner launched its “final-mile” service in 2016, and has been building it out over the last year. Details of a potential partnership remain unclear given the early stages of the discussions, the source added.

Werner declined to comment on the matter, and UPS would not identify who it is in talks with.

Final-mile delivery is a market that Transport Futures economist Noel Perry said could grow to about $12 billion over the next decade, from about $3.7 billion today, thanks in large part to a growing appetite from younger consumers to buy everything from BBQ grills and mattresses to dining room tables online.

“Outsourcing to a trucking firm would allow UPS to enter into the final-mile business without committing its own capital up front to expand its fleet or acquire end-of-line, final-mile infrastructure such as terminals,” R.W. Baird analyst Ben Hartford said.

That could be welcome news to UPS investors waiting on Chief Executive David Abney’s promise to deliver higher margins by pumping billions of dollars into network upgrades and expansions.

When asked about the strategy with bulky goods in an interview with Reuters, UPS Chief Operating Officer Jim Barber said the company has decided it can’t ignore the rising demand for in-home deliveries of furniture, mattresses, and treadmills, and was evaluating different ways to handle the larger cargo.

“You got bigger products moving through networks across the globe,” said Chief Operating Officer Jim Barber. “What we have to do is try and figure out the right way to get them in the right network as we move forward.”

Barber did not confirm talks with any specific company, and said that UPS has not made a final decision “because you have to balance it with our Express network, our labor constraints and our strategy going forward.”

Other trucking players include Schneider National (SNDR.N), Ryder System Inc (R.N), Seko Logistics, and J.B. Hunt, which have expanded final-mile capabilities organically or through partnerships and acquisitions in recent years, hoping to lure major retailers with their scale.

Schneider and XPO Logistics (XPO.N), the largest provider of final-mile bulky deliveries in North America, told Reuters they had not met with UPS to discuss handling final-mile deliveries. J.B. Hunt and Ryder declined to comment. Seko did not immediately respond to a request for comment.

As it is now, most of the major trucking and logistics firms in this final-mile bulky goods business hire regional contract-carriers – and there are hundreds nationwide – to haul products from warehouses to living rooms across the country.

If UPS moves forward, it would give UPS’ retail customers including Wayfair, Amazon.com, Walmart Inc (WMT.N), IKEA AB and Target Corp (TGT.N) a “big and heavy option” in their online shipping portals so consumers can receive shipments across the country, the source said.

It could also set up UPS to hit its goal of being a one-stop shipping partner for retailers while also solving the problem of sofa-sized boxes unexpectedly showing up in trailers they pick up from retailer warehouses and take to parcel sorting hubs.

UPS has worked for years to limit the sizes of unwieldy - or “non-conveyable” - items as it invests to speed up its package-sorting operation. It charges big premiums to handle the freight.

UPS main rival FedEx said in March the expansion of its Memphis hub will include an area for oversized shipments and announced it bought UK-based deliverer P2P Mailing Limited. But a company spokesman said FedEx does not yet do in-home heavy goods deliveries in the United States.

BULKY RISKS

Entering the bulk goods delivery business adds new complexities and risks compared to traditional parcel delivery.

For example, hauling a dresser to an upstairs bedroom and assembling it is a more intricate and physically demanding affair than dropping off a pallet at a warehouse’s loading dock. XPO Logistics’ Chief Information Officer Mario Harik said in an interview it was training drivers on etiquette and how to use mobile devices to log deliveries and customer complaints for large or heavy deliveries.

Truckers can charge more for “white glove” services - which include varying degrees of installation, product assembly, and repairs - but the margins are often no better than other types of deliveries because stiff competition for new business has held down the prices carriers can charge retailers.

But deliverers are hoping they can hike prices and boost margins as they increase delivery “density,” or the number of deliveries they make in a region on a given day, said Hartford, the R.W. Baird analyst.

Heavy goods deliveries through UPS would likely include two workers willing to spend 20 minutes in a home, versus more complex installation and repairs, the source said.

UPS declined to discuss the growth potential, but the source familiar with the strategy said UPS was looking initially for a trucking partner that could make or manage as many as “tens of thousands” of deliveries daily.

Editing by Nick Carey and Edward Tobin

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