Ups Puts Its Back Into It

The strike boosted rivals. Can the shipper regain lost turf?

Talk of the United Parcel Service Inc. strike still irks Keith Newman. When in August the Big Brown Army all but shut down for 15 days during the Teamsters' walkout, the transportation manager at Fort Smith (Ark.)-based Baldor Electric Co. scrambled to come up with ways to ship about 2,000 packages of electric motors and drives a day. The strike cost Baldor and its customers $44,000 in extra freight charges, as Newman shifted business to other carriers. When UPS came back, Baldor kept 10% of his business with competitors such as RPS Inc. "We don't want to have all our eggs in one basket again anytime soon," he says.

Include Newman with the scores of customers that UPS executives are working overtime to win back (table). Nearly two months after the strike ended, UPS's clients are taking a second look at other carriers to distribute their products. It's early to gauge permanent losses, but UPS execs concede that since the strike, volume is running 5% behind its usual 12 million packages a day. Now the $22.4 billion company is counting on a beefed-up sales force, direct-mail offers, and an ad campaign to rebound. "I'm sure our competitors got packages from us," says Joe Pine, UPS's vice-president of marketing. "But we're doing our best to get them back."

SHIPPING SHOWDOWN. He'll need to. The strike cost UPS $700 million in lost revenue, plus costs of leasing additional aircraft and trucks. And that's just the short-term fallout. A bigger question, cautions analyst Paul Schlesinger of Donaldson, Lufkin & Jenrette Securities Corp., "is whether that 5% is the extent of customer dissatisfaction, or only what the customers were able to move, given competitors' capacity."

Having grabbed UPS business during the strike, rivals are emboldened to try for more. Federal Express Corp. is opening new hubs in Fort Worth and Paris, France, as part of $2.5 billion it's spending on new capacity. On Oct. 6, the Memphis-based overnight-shipping leader bought Caliber System Inc., parent of RPS. That puts FedEx on UPS's turf--nonexpress ground delivery.

Then there's the U.S. Postal Service. Under the direction of former Ford Motor Co. executive Marvin T. Runyon, the agency has long coveted UPS's parcel business. Six months before the strike, the postal service put together an inch-thick game plan on how to play a UPS walkout, including lining up 2,700 temporary workers to help with extra business. The result: The volume of express mail shot up 70%, while priority and parcel mail climbed 50%.

To retain the extra volume, Runyon is urging lawmakers on Capitol Hill for leeway to negotiate with large shippers on prices--even as UPS lobbyists argue that the Post Office's quasi-governmental status gives it unfair advantage. Runyon's also pushing new services such as overseas shipping.

The Postal Service's efforts are paying off. St. Petersburg (Fla.)-based Home Shopping Network Inc., which ships about 60,000 packages a day, raised the portion of the business it gives the agency during the strike, and now ships 5% less via UPS than before the walkout. The Post Office has "demonstrated to us a desire to be more innovative and responsive," says a spokesman.

PEERLESS? FedEx is also putting more pressure on UPS. During the strike, the company delivered a daily average of 800,000 packages, a 15% jump over normal levels; it hopes to keep 15% of the windfall and is preparing to confront UPS on the ground as well as in the air.

UPS dismisses FedEx's new push, pointing out that many customers still say that no other shipping company can match its service. Take catalog-company Lands' End Inc. Senior Vice-President of Operations Francis P. Schaecher says he can't afford to give up the UPS tracking service, which Lands' End struggled to replicate during the strike by encouraging customers to notify the company when packages arrived.

J. Peterman Co., a Lexington (Ky.)-based catalog shipper that sends 1,500 packages a day, tells a similar tale. "With our scale and need for dependability, there aren't many carriers that can do what UPS does," says Senior Vice-President John R. Rice. That's exactly what UPS is banking on to help it win the shipping showdown.

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