Courier Services, Except by Air

SIC 4215

Companies in this industry

Industry report:

This category covers establishments primarily engaged in the delivery of individually addressed letters, parcels, and packages (generally under 100 pounds), except by means of air transportation or by the United States Postal Service. Delivery is usually made by street or highway within a local area or between cities. Establishments primarily engaged in furnishing air delivery of individually addressed letters, parcels, and packages, except by the United States Postal Service, are classified in SIC 4513: Air Courier Services, and establishments of the United States Postal Service are classified in SIC 4311: United States Postal Service.

Industry Snapshot

In the late 2000s and early 2010s, courier services represented a multibillion-dollar U.S. industry. In 2009 alone, industry leaders United Parcel Service (UPS) and FedEx reported almost $80 billion in revenues combined and employed more than half a million workers. Approximately 5,551 establishments operated within the industry in 2009, according to Dun & Bradstreet. These consisted of local messenger and local delivery services as well as surface and ground-based couriers. Courier services, which accounted for more than 90 percent of all industry revenues, were dominated by the big names, including United Parcel Service (UPS) and Federal Express (FedEx). On the other hand, local carrier and delivery services were highly diversified and tended to be smaller operations; the top 50 firms accounted for just a third of the sector's revenues.

Organization and Structure

The diversity of business activities performed by industry firms was reflected in the number of establishments for which courier service was not their sole business. For example, industry firms included bus lines, messenger services, armored car services, temporary employment firms, business-only couriers, food product delivery companies, bicycle courier companies, newspaper publishers, specialized bank document couriers, couriers who provided "in-house" service for business clients within a single office building, and a wide variety of smaller firms. The vast majority of industry firms serviced local markets--for example, a single urban market and its environs--and offered no air delivery service.

The U.S. ground courier industry delivers packages and parcels generally weighing from 70 to 150 pounds for business and residential customers. The types of delivery available range from overnight (or "next-day") service to two-day and three- to five-day service with a range of additional services such as international delivery, same-day intercity air delivery (packages picked up in the morning and delivered before 5:00 p.m. that day), and even express overnight service to Europe by 8:30 a.m. the next day. While overnight air service was increasingly the most dominant delivery service provided by air couriers, same-day, two-day, and three-day ground service remained a significant source of revenue for industry firms.

The industry continued to offer a wider range of services and rates to capture the many specialized niches of the package shipping market. For example, UPS introduced five new rate tiers based on commodity density, also later adding a tier for light and bulky parcels. One such service, accepting packages weighing 100 pounds or more, helped UPS and other carriers compete with the small-package niche of the less-than-truckload (LTL) segment of the trucking industry, which transported consolidated loads from different shippers that consisted of individual packages of 500 pounds or less. These traditionally general freight carriers began reacting to the ground couriers' cooptation of their small package business by adopting the same operating strategies that helped the leading couriers dominate their industry: local pick-up and delivery of small packages and parcels, the creation of geographical distribution networks or hubs, and the use of tracking software and high-tech sorting facilities.

The leaders of the air and ground courier industries maintained extensive networks of drop-boxes and staffed drop-off centers in addition to providing on-site package pick up. In 2009 UPS had 2,880 facilities and 62,000 retail access points worldwide. UPS purchased the shipping center chain Mail Boxes Etc., Inc. (MBE) in 2001. By 2004, MBE consisted of some 1,500 worldwide locations, more than 75 percent of which were located in the United States. Another 3,700 MBE were renamed The UPS Store.

In 2004 FedEx purchased Kinko's, Inc., renaming it FedEx Office. Kinko's provided FedEx with more than 1,200 retail locations and allowed the company to expand into the pack-and-ship sector as UPS had with MBE. At the time of the purchase, the company also had 890 global service centers, almost 7,000 authorized shipping centers, and more than 41,400 drop boxes.

In 2010, the UPS delivery network consisted of more than 500 aircraft and 100,000 motor vehicles. The company serviced more than 200 countries and delivered 15 million parcels and documents a day. By comparison, in 2010 FedEx had 665 planes and 41,000 motor vehicles, serviced 220 countries, and had a daily volume of about3.5 million shipments per day.

Background and Development

UPS was formed in 1907 as American Messenger Company, a telephone message service in Seattle, Washington. In 1913, the company changed its name to Merchants Parcel Delivery when it began delivering small parcels for local department stores. When the company changed its name again to United Parcel Service in 1930, it had expanded its service areas to northern California, New York, New Jersey, and Connecticut. UPS began operating in Los Angeles in 1952 and in the years that followed gradually expanded its services throughout the nation.

As late as 1970, Federal Express was the only package courier in the United States specializing in express delivery, when the United States Postal Service (USPS) began to offer business customers priority mail delivery on an experimental basis. Within five years, the USPS was publicly acknowledging UPS as its principal competitor while Federal Express, aided by a 1974 UPS strike and its memorable slogan "When it absolutely, positively has to be there overnight," began to emerge as the major force in the air segment of the courier market. UPS responded by offering air delivery services, though initially through the use of charter air services. In 1982 it offered guaranteed next-day air delivery to anywhere in the United States and began buying its own air fleet.

In 1986, UPS began automating its operational systems with a five-year $2 billion technology upgrade program that was bolstered by an additional $500 million technology investment each year thereafter. It also countered FedEx's catchy corporate slogan with one of its own: "We run the tightest ship in the shipping business." By 1987 UPS owned 90 planes; by 1988, it offered international service to 41 countries; and between 1987 and 1992 it acquired 16 firms. In 1990, UPS bought a 9.5 percent stake in Mail Boxes, Etc., a franchise neighborhood-oriented mailing and business service company that began offering UPS to its customers for their shipping needs. Between 1991 and 1992, UPS acquired three European courier firms, and by 1993, UPS was delivering 11.5 million packages and documents a day and boasted over 1 million regular customers. In 1996 it paid $110 million in sponsorship and marketing/advertising fees to be the official sponsor of the summer Olympic games in the company's hometown of Atlanta.

The major competitors in the ground courier industry continued to wage a fierce price war with each other and with the air courier industry. This battle resulted in lower rates for small package shippers but reduced earnings for firms in an industry already characterized by narrow profit margins.

The rapid spread of fax and e-mail technology in the 1980s and 1990s represented a significant source of competition for ground couriers (primarily in the same-day delivery niche) and was estimated to have cost the courier industry $75 million in lost business in 1990 alone. At the same time, the adoption of cost-saving "just-in-time" or zero-inventory management policies by many American businesses in the same period created a demand for truckers capable of providing same-day warehouse-to-customer transport of time-sensitive parts and manufacturing materials. Because of the quick-delivery, short-haul nature of many courier firms, this growing market represented a natural niche for the ground courier industry.

Major industry events of the mid-1990s included the 1996 merger of U.S. Delivery Systems and Corporate Express in the same-day courier segment of the industry; the purchase of three smaller services by Consolidated Delivery and Logistics the same year; United TransNet Inc.'s acquisition of Eddy Messenger Service; and the merger of Quick International Courier and Specialty Mailing Inc. U.S. Delivery Systems, of Houston, Texas, continued its bid to become the leader of the U.S. same-day, point-to-point local courier industry by buying more than 33 smaller delivery services in 85 U.S. cities between 1994 and 1995. In 1996, UPS announced a joint venture with China's Sinotrans-Pekair transportation company to share its express delivery technology in the Chinese market and established a major new Asian-Pacific air express hub in Taiwan. In 1997, UPS also began selling passenger seats on its weekend airfreight flights to exploit the revenue potential of its fleet on Saturdays and Sundays.

Despite UPS's seemingly unassailable dominance of the U.S. ground courier industry, it was never very far away from bad press. In the early 1990s, for example, the carrier was accused of practicing antiunion employment policies, failing to ensure worker safety at package-sorting facilities, raising package weight limits without appropriately retraining employees, and refusing to pay workers overtime for extra hours and missed lunches (resulting in a class-action lawsuit settled out of court for $14 million). Between 1993 and 1995, UPS spent about $1 billion on safety equipment and worker-training programs. However, UPS still had problems. It struggled with charges that it used predatory pricing tactics, and in 1996 the International Transport Workers' Federation launched a campaign to unionize the UPS non-U.S. workforce.

In the 1980s and 1990s, UPS, one of only three U.S. companies that competed nationally for small package delivery (Roadway Package system, Inc. and the USPS were the other two), and Federal Express (the air courier leader) increasingly encroached on each other's traditional markets, so much so that the differences between the two firms in services offered and size of fleet were almost negligible. Although UPS did not enter the air courier business until the 1980s, by 1995 double-digit growth in its air express operations allowed a UPS spokesperson to admit that airfreight delivery had completely changed the company's business approach. By late 1995, the UPS air express business was accounting for 25 percent of its annual revenues.

Despite the growth in electronic transmission of data and information, courier services maintained healthy markets into the millennium. Normal daily averages for UPS were about 12.5 million per day in 1999.

One of the biggest contributors to the continued success of courier services was the rapid growth of e-commerce, including online shopping whereby online retailers delivered their parcels--as consumers often requested--by courier shippers. The convenience of the entire transaction outweighed hefty delivery charges for a generation of Web users accustomed to near-instant gratification. In 1998, UPS shipped approximately 55 percent of all items bought on the Internet during the holiday season; the USPS delivered another 32 percent, followed by FedEx at 10 percent.

As competitors' prices remained parallel, the only real room for growth was overseas, and all three companies sought to secure these lucrative markets. However, higher fuel costs cut deeply into profits in the late 1990s, and UPS and FedEx announced increases in their charges of about 3 percent, starting in early 2000.

The terrorist attacks against the United States on 11 September 2001 served to exacerbate an already faltering U.S. economy. In addition to reduced levels of consumer and corporate spending, concerns about the security of deliveries came to the forefront as mail tainted with deadly anthrax bacteria was circulated in the postal system, causing several deaths. Together, these conditions presented serious challenges to courier services. By early 2003, the economy was poised for recovery. However, military conflict in the Middle East served to complicate this upturn. The onset of war in Iraq resulted in a great deal of uncertainty over fuel prices--an important industry dynamic--and caused some carriers to levy fuel surcharges.

E-commerce continued to present ground couriers with great opportunities in the early 2000s. Consistent with earlier trends, e-commerce was slowly changing the dynamics of the business-to-consumer (B2C) retail sector, namely by eliminating layers from traditional retail distribution chains. As more transactions shifted to e-commerce, there was a movement toward higher volumes of smaller, individual shipments--many of which were handled by courier services--from manufacturers to consumers. In contrast, fewer numbers of large shipments were needed from manufacturers to so-called "middlemen" such as wholesalers and distributors. According to Standard & Poor's, Zona research revealed that UPS handled about 55 percent of all e-commerce transactions in the early 2000s, followed by the USPS (32 percent).

For the industry's largest firms, foreign markets continued to represent the best growth prospects. By 2001, UPS was making greater inroads in Asia, where FedEx had already established a presence several years earlier. UPS first extended its reach to the Asia Pacific region in 1988 when it acquired Asian Courier System of Hong Kong. In 1997, UPS forged a joint venture with service agent Delbros, Inc. called UPS-Delbros International Express Ltd., Inc. However, it began direct service to China in March 2001, after receiving approval from the U.S. Department of Transportation. One month after it began offering service to China, UPS announced that it had signed a joint letter of intent with the Philippine government for the development of an intra-Asia hub. The company explained that the new hub would enable its planes to access every major city in Asia within four hours.

FedEx and UPS were becoming increasingly competitive as each moved into the other's area of expertise. In 2002 FedEx expanded its national home delivery service to reach nearly 100 percent of American households. Although the home-delivery segment lost $22 million in 2003, it became profitable for the first time in 2004. While FedEx aggressively expanded its ground-based services, UPS entered the next-day and two-day service delivery segment--long the domain of FedEx. Although in the mid-2000s UPS continued to dominate the ground-based delivery market and FedEx controlled the expedited shipping market (with a high use of air-based shipping), both companies were working hard to expand their portfolios to be a "one-stop" supply chain provider, able to meet the needs of a broad range of customers.

UPS's domestic package delivery services generated $26.61 billion in revenues in 2004, of which ground-based deliveries accounted for $17.4 billion, up from $16.5 billion in 2003. Average ground-based delivery volume was 10.7 million and average revenue per piece was $6.42. Ground-based deliveries increased by 4.8 percent during the first nine months 2004, but then slowed to just 1.5 percent during the fourth quarter. Revenues per piece increased by just 0.9 percent during the year as gains based on a price increase were offset by the elimination of a fuel surcharge.

In fiscal 2004 FedEx's ground services recorded a net income of $522 million on $3.9 billion in revenues, representing a one-year increase of 9 percent in revenues and 6 percent in profit. On a two-year comparison, 2004 revenues increased by 23 percent (up from $2.92 billion in 2002) and income increased by 47 percent (up from $337 million in 2002). Average daily package volume increased by 5 percent during 2004 to 2.29 million and average revenue per package increased slightly to $6.48.

The U.S. ground delivery service was a mature industry by the mid-2000s, and the outlook was tied closely to the overall economic environment: Shipping would go up during periods of increased economic activity and go down during sluggish periods. Growth was primarily predicated on either a good economy, cost-cutting measures, or siphoning off customers from a competitor. However, substantial new growth was forecast for overseas operations--particularly in China. Both UPS and FedEx continued to aggressively expand their capabilities in China.

In the third quarter of 2004 alone, FedEx ground-based revenues in China increased by 20 percent to $1.17 billion. UPS, which already had 40 logistics and distribution centers in China, announced in March 2005 that it would open warehouse and distribution centers in another 24 cities. With the Chinese economy growing at twice the rate of the U.S. economy during the mid-2000s, both UPS and FedEx anticipated significant increases in their international revenues.

In the mid-2000s the U.S. economy emerged from the doldrums--temporarily at least--and the shipping industry benefited from the increased commerce activity. Profits were held in check, however, by record high prices for diesel. In November 2007, the national average for a gallon of diesel fuel was $3.43.

Both UPS and FedEx experimented with fuel surcharges in the early 2000s, but by 2005 both had dropped the additional charge from their books. By 2007, however, the companies had reinstated a surcharge, with FedEx Freight adjusting its surcharge percentage weekly and UPS adjusting the surcharge percentage on a monthly basis.

The international market remained strong. UPS's international export revenues jumped 14 percent on double-digit volume growth in the second quarter of 2007. Total export volume increased 10.4 percent, with Europe posting a double-digit export volume gain. Asia export volume jumped 25 percent with strong growth out of China.

Because of the strong international market and in part because of reinstated surcharges, UPS and FedEx experienced solid growth in 2006. UPS had a one-year sales growth of 11.7 percent, while FedEx had a one-year sales growth of 9 percent with a one-year net income growth of 11.6 percent. As the economy slipped into a recession in 2007 and 2008, however, the industry felt the negative effects in terms of shipment volume and revenues.

Current Conditions

Business was down for industry leaders UPS and FedEx in 2009 due to the economic recession. UPS (which had adopted its "What Can Brown Do For You?" slogan) reported shipment declines of more than 5 percent in late 2009, the seventh consecutive decline. In January 2010, the company announced it would cut 1,800 jobs as it waited for an economic recovery. FedEx also reported drops in revenues and shipments in 2009; in its annual report the company simply stated "It was a tough year at FedEx Freight." However, the firm also claimed to "have a strategy in place to turn things around."

Indeed, while both UPS and FedEx struggled during the economic downturn, both firms also continued efforts to provide more and better services to their customers. For example, in 2009 UPS expanded its domestic express pickup and delivery services to 22 more countries, bringing the total to 55; introduced door-to-door pickup and delivery for all UPS freight services between the United States, Canada, and Mexico; and expanded its early-morning U.S. delivery area to 23,000 zip codes. FedEx Ground opened nine new hubs between 2002 and 2009 and expanded or relocated more than 500 local facilities, resulting in an increase in package volume from 2.2 million a day in 2003 to 3.5 million a day in 2009.

By 2010, things seemed to be looking up for the industry. UPS reported a 71 percent increase in earnings in the second quarter of 2010, boosted by an increase in demand for domestic and international shipments. FedEx also expected an increase in business, as executive Alan Graf Jr. told Fleet Owner in July 2010: "Our revenue and earnings growth are exceeding original expectations, primarily due to better-than-expected growth in FedEx Express and FedEx Ground volumes." Others, such as Noel Perry of Transport Fundamentals, were more cautiously optimistic, and predicted a "slow economic recovery, one characterized by several quarters of slow uneven growth."

In mid-2010, UPS and FedEx continued to battle for more than just their share of packages. Both companies were lobbying heavily--and spending millions on ad campaigns, grassroots organizing efforts, and other tactics--regarding a proposed provision to the labor law that would require FedEx to comply with the same labor laws as UPS. At the time, UPS drivers had to comply with the National Labor Relations Act, whereas FedEx Express drivers came under the Railway Labor Act. According to The Washington Post, The former law is seen as more friendly to unions by allowing local organizing and the ability to strike. The latter, first applied to FedEx because it was founded as an airline, generally bans strikes and requires labor unions to organize an entire company at one time, making it easier for the Teamsters and other unions to organize." As of July 2010, as stated in the Post article, "The two sides appear to be in a standoff."

Industry Leaders

The most successful couriers in the early 2010s remained the large national companies: UPS and FedEx, which offered air courier and ground operations and competed directly with the ground-only couriers for business. In fact, the largest air couriers maintained sophisticated and extended surface operations that dwarfed the scope of services offered by the majority of companies in the ground courier industry. By 2010, former rivals Purolator Courier, Emery Forwarding, and Airborne Express had either gone out of business or been bought up and integrated into other companies, whereas DHL had shifted its focus to international shipping. Another important provider of services closely related to the ground courier industry was the USPS, which began to market itself as a direct competitor to UPS and FedEx in the delivery of two- to three-day parcels and documents.

By the mid-2000s, the UPS family of companies had grown to include UPS Air Cargo; UPS Aviation Technologies; UPS Capital Corporation; UPS Consulting; UPS Mail Innovations; Mail Boxes Etc., Inc. (many rebranded as The UPS Store); UPS Professional Services; UPS Supply Chain Solutions; and UPS TeleServices. UPS employed about 408,000 workers in all of its operations in 2009 and registered annual sales of $45.2 billion. Sixty-two percent of the firm's revenues came from the U.S. domestic package market, 21 percent from international package delivery, and 17 percent from supply chain and freight. About 76 percent of sales came from within the United States in 2009.

UPS also continued to expand around the world; in 2009 it purchased a unit of Intereuropa Globalni Logisticni Servis (Slovenia) and acquired service agents in Slovenia and Turkey. Other efforts in development included expansion of Worldport, its international air hub located in Louisville, Kentucky; development of an international air hub in China; and opening of new facilities in the Netherlands and Puerto Rico.

Like UPS, FedEx Corp. was organized into a suite of companies, including FedEx Express, FedEx Ground, FedEx Freight, FedEx Custom Critical, FedEx Trade Networks, and FedEx Services. FedEx had approximately 141,000 employees in 2009 and revenues of $34.7 billion. FedEx was aggressively trying to wrest a larger percentage of the ground delivery market from competitor UPS with its FedEx Ground operations. This effort was aided by the acquisition of Caliber Systems (a former UPS competitor) in the late 1990s, as well as infrastructure and systems investments totaling some $800 million. In the late 2000s FedEx purchased Watkins Motor Lines (renamed to FedEx National LTL) and, according to the firm's annual report, gained about half of former rival DHL's domestic shipment clients when the firm shut down most of its U.S. distribution facilities.

Research and Technology

In its operations centers, shipping points, and package pickup and delivery trucks, the U.S. ground courier industry was transformed by mobile communications technology and electronic scanning, tracking, and billing technology. Faced with increasing competition from Federal Express, industry leader UPS inaugurated a technology modernization program in the mid-1980s that transformed it into a technology-driven enterprise with a management information systems (MIS) staff of 4,000. In 1990, UPS began installing a cellular phone system in 50,000 of its fleet trucks that enabled customers to determine the exact status of their packages in real time for a cost of 75 cents. The $150 million system, called DIAD (Delivery Information Acquisition Device), used an electronic pen and clipboard device carried by the driver and was based on "image capture" software that recorded the customer's signature and the package's bar code data. When the driver attached the clipboard to an adapter in the truck, the data was sent via UPS's UPSNet system to the company's main data center for customer access. Among other advantages, the system largely eliminated the problem of verifying illegible signatures, thereby tripling the number of next-day air deliveries made without errors and enabling UPS to include an electronic "replica" of the recipient's signature when providing the shipper with a proof of delivery. In 1992, UPS introduced GroundTrac for electronically tracking packages passing through the UPS system. It also began investing in coded package labels capable of containing more data than existing bar code labels.

UPS also established a toll-free hotline that shippers could call to get a faxed sheet displaying the time and location of their package's delivery and the name of the person who signed for it. By 1996 this simple fax system had evolved into UPS's interactive home page on the World Wide Web, through which customers could check the status of their shipments. Customers also could schedule pickups, get price estimates for shipping their packages, and make billing inquiries. By 1997, Federal Express's online system claimed more than 400,000 customers who generated more than 60 percent of the company's 2 million-plus daily transactions.

Other advanced technology applications that took place in the ground courier industry included parcel processing systems capable of sorting 20,000 packages per hour and satellite computer systems that could locate courier fleet trucks as precisely as 300 yards or better.

Research and technology in the industry also strove to keep up with the "green movement" in America. For example, in 2009 UPS added 300 natural gas vehicles to its fleet, which was already had the largest private fleet of alternative fuel vehicles in the United States, according to the company's annual report. In addition to adding hybrids to its fleet, FedEx developed an electric delivery truck, which, according to the company, cut direct operating costs by 60 to 80 percent per vehicle mile.

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