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UPS Domestic Package Segment: Largest Courier Service in the US

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Apr. 7 2016, Updated 11:08 a.m. ET

Segment overview

In the previous part of this series, we looked at a snapshot of United Parcel Service’s (UPS) corporate structure. In this section, we will look closely at UPS’s US Domestic Package segment.

As the jewel in the company’s crown, this segment’s share averaged 61.1% of the total revenues in the last six years. UPS’s US Domestic Package segment consists of the time-sensitive delivery of letters, documents, and packages across the US.

The company’s US online sales growth is estimated to double by 2020, and it is the major driving force in the segment’s volume growth. The volumes are also driven by large seasonal spikes such as the Thanksgiving-to-Christmas season.

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Services offerings 

This segment is further divided into three focus areas: Next Day Air, Deferred, and Ground. On an average, Ground has the largest share of the revenues of the US Domestic Package segment followed by Next Day Air. UPS’s daily US air volume consists of 2.6 million packages and documents. In 2015, the company delivered an average of 13 million packages every day through UPS Ground. Usually, the packages are delivered within one to three business days.

The company offers an option to customers to select from a range of guaranteed time- and day-definite delivery options. Customers can select from same-day, next-day, two-day, and three-day delivery alternatives. UPS broadened its UPS Next Day Air Early service to add 4,000-plus ZIP Codes. It enabled shippers and their customers the option of an earlier first-of-day delivery with commit times from 8:00 AM to 2:00 PM.

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Competition

United Parcel Service competes directly with FedEx Corporation (FDX) in this segment. UPS has a practical dominance in the US ground market. It also competes with diverse competitors such as trucking companies like J.B. Hunt Transport (JBHT) and Old Dominion Freight Line (ODFL), air cargo companies, and passenger airlines such as Delta Air Lines (DAL) and JetBlue Airways (JBLU).

Major US airlines and trucking companies make up 48.0% and 11.7% of the iShares Transportation Average ETF (IYT), respectively. UPS Class B shares make up 8.3% of the portfolio holdings of IYT.

UPS also renders day-definite guaranteed ground service serving each US business and residential address. The company also provides UPS SurePost, an economy residential ground service for clients with no time-bound requirements and lightweight residential shipments. Here, the company utilizes the services of the US Postal Service (or USPS) for final delivery.

In the next part, we’ll analyze UPS’s International Package segment.

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