Consultant’s Insight: UPS’ health care strategy is more of the same

UPS has announced more health care acquisitions and plans additional layoffs amid lower parcel volumes. UPS is facing a seismic strategic shift as it turns its focus more to health care opportunities while letting a growing number of new entrants and others compete for more residential deliveries that it can no longer profitably deliver. UPS has always struggled to deliver residential parcels profitably and has instead encouraged consumers to pick up deliveries at third-party locations, such as the UPS Store , Michaels and other retailers. For consumers who prefer to receive deliveries at home, UPS raised its delivery rates and surcharges. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] UPS is now at a point similar to 2000, when I started with the company. I was hired as a research analyst to focus on non-parcel solutions. UPS subsidiary UPS Supply Chain Solutions came from my group, which focused on international freight forwarding, logistics, customs brokerage and freight. UPS then became one of the largest of only four integrators at that time. The others were DHL , FedEx and TNT . UPS Supply Chain Solutions consists of more than 30 acquisitions, and not all have integrated well into UPS’ culture. Some acquisitions, such as Overnite and Coyote Logistics , are no longer needed in UPS’ current strategy and have been sold off at a loss. Will UPS’ health care strategy suffer the same fate? Health care UPS Logistics Group, the forerunner to UPS Supply Chain Solutions, made its first health care acquisition in 2000: Livingston Inc. and Livingston Healthcare Services Inc. Livingston operated 22 distribution centers across Canada and specialized in supply chain management in the high-tech, consumer products and health care sectors. Livingston Healthcare Services had six U.S. distribution centers and specialized in logistics for health care , biotechnology and medical device customers. After the Livingston acquisition, UPS acquired additional health care distribution and logistics service providers, beginning in Europe and then spreading worldwide. However, it was not until UPS acquired Marken in 2016 that the integrator’s health care group took off. The Marken acquisition nearly doubled UPS’ health care-dedicated facilities and propelled UPS into the logistics and handling of biologics and clinical trials. Since 2016, more acquisitions have been made, such as Bomi Group and MNX Global Logistics . This week, UPS announced two more acquisitions: Frigo-Trans and its sister company, BPL , based in Germany. I wonder how unique each of these acquisitions is from the previous companies that UPS acquired and how successful UPS has been in integrating them. A different world It's a different world and a different UPS since I left the company in 2011. Technology advancements and investments have resulted in optimized parcel facilities requiring fewer workers, and a slew of new companies and solutions have entered the logistics and last-mile markets, forcing UPS to promote itself in a much larger, informed and evolved market. In 2020, UPS established its UPS Healthcare division, which includes services from UPS Supply Chain Solutions and UPS. It took years for UPS’ health care strategy to come to fruition, and the pandemic propelled it into the limelight. UPS’ health care logistics group generated more than $10 billion in revenue in 2023 and expects to double that by 2026, according to the company. What UPS executives don’t tell you is the group’s profitability. If there is profitability, it’s probably not much. Health care logistics is an expensive service with great opportunities for those with deep pockets to pursue. But other logistics providers are stepping up their game — like in the early 2000s when logistics and freight forwarding service providers were the targets — making their own acquisitions and launching new health care logistics services. FedEx and DHL also remind the market that they offer similar solutions. Soon, like in the early 2000s, UPS will realize that it is one of many service providers and that it will need to explain how its health care logistics services are different or better from FedEx, DHL and others. New CEO, new focus The last-mile and logistics services are still important to UPS, but they are changing. At the height of the global pandemic, UPS hired Chief Executive Carol Tome , who quickly told the market that UPS would no longer focus on being bigger but instead would embrace a new strategy: a better, not bigger, framework that focuses on high-growth areas like health care, small business and international markets. The problem is that FedEx and DHL are following a similar strategy. Once again, UPS will need to explain its uniqueness in a market that is quickly becoming commoditized, or else it will turn into a rate battle among integrators and other competitors.

Consultant’s Insight: UPS’ health care strategy is more of the same

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