UPS targets low-cost, e-commerce shippers with deferred delivery

UPS targets low-cost, e-commerce shippers with deferred delivery

UPS's new shipping option for e-commerce sellers can be seen as a way to supply growing demand on sites such as Amazon and Alibaba with lower cost options. Photo credit: UPS. 

UPS plans to give e-commerce sellers of low-cost goods in the United States, Canada, China, Hong Kong, and the United Kingdom lower-cost air freight options tied to longer and wider delivery windows.

Among a range of new services and announcements the global integrator made Tuesday was a new service called UPS Worldwide Economy. The service is targeted at sellers of lightweight goods looking for less expensive shipping options to fulfill cross-border e-commerce orders.

In exchange for lower freight rates, sellers agree to lengthier delivery windows of five to 12 days, compared with most international parcel options of one to three days. The product gives UPS flexibility to optimize its international air cargo network — essentially it could choose which flight within that window best fits its network.

UPS noted that global cross-border online sales will account for $1 trillion in sales by next year and are projected to make up 20 percent of e-commerce in 2022.

From the shipper perspective, the move could be seen as providing a middle ground between expedited parcel and out-and-out freight. Many online e-commerce sellers have an unsophisticated view of the freight options available to them — particularly for cross-border orders — and the deferred delivery window could be seen as a way to ease them into the world of airfreight with longer lead times. That, in turn, could make them think about sales forecasts and demand signals the way a larger shipper would.

Lower-cost option

“The new offering supports international merchants’ desire to make more low-priced items available for cross-border e-commerce transactions,” UPS said in a statement, noting that “additional key global markets [are] being added in the near future.”

The service, UPS said, is designed to benefit US businesses in the business-to-consumer and business-to-business space “looking to export to key e-commerce destinations across the world, but have been waiting for a more affordable way to ship internationally. Exporting opens doors to new customers, and helps businesses diversify revenue to offset economic shifts.”

With the service, sellers can ship with delivery duties paid or unpaid.

“While the ‘last mile’ gets a lot of attention in our industry, we know small businesses look carefully at the first mile,” Nando Cesarone, president of UPS International, said. “This service enables small businesses to compete like micro-multinationals.”

Logistics industry analyst Cathy Roberson said the move could viewed as UPS amplifying its support of Amazon and Alibaba by providing sellers on those platforms with more cost-effective shipping options, a growing trend across the e-commerce landscape. 

Tight margins and optimized capacity

“Margins are typically super tight already with these shippers,” said Roberson, who tracks the integrators particularly closely. “Providing 'free shipping' is painful so there's got to be some tradeoffs somewhere. I honestly think this new UPS service is a smart one regardless of global trade declines and it will definitely attract third-party sellers on such platforms as Amazon and Alibaba. It’s also a smart way to help optimize their international network, particularly as global trade growth slows.”

Roberson added that using the new UPS service could also appeal to other forwarders who focus on e-commerce retail business in that it would keep packages sent by their customers in a single network, minimizing the number of potential hand-offs.

According to Roberson’s research into UPS’s financials ahead of its second-quarter earnings release Wednesday, average daily second-quarter volumes for international export packages fell 2.6 percent. Comparatively, average revenue per piece declined 0.3 percent in the same period. First-quarter volumes were up 0.3 percent year over year. 

“There were gains and a shift towards Asia to Europe and de-emphasizing the trans-Pacific lane because of declines on that lane,” said Roberson.

In 2018, revenue per export package increased each quarter: 2.6 percent in the first quarter, 3.4 percent in the second, 0.8 percent in the third, and 1.4 percent in the fourth. Corresponding export volumes improved by 11.5 percent, 9.5 percent, 2.6 percent, and 2.4 percent, respectively.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.