Big Brown's Big Coup

As purchasing director for e-tailer, Michael Climo considered himself a FedEx fan. Then delivery arch-rival United Parcel Service Inc. made an offer: The Atlanta shipping giant said it could not only speed delivery of the electric pet fences and other gadgets SmartHome sells, but--by using the Web--slash costs.

Climo bit, and UPS redesigned SmartHome's Web site so customers could track shipments with a mouse click or two. SmartHome's service center now gets virtually no calls checking order status--down from 60 daily before the change--freeing workers to make more sales calls. "FedEx just didn't have the software to do something like this," says Climo.

Chalk up another cyber victory for UPS. Web smarts like that have made Big Brown the hands-down winner in delivering the $40 billion worth of stuff that will be bought online this year. Today, those ubiquitous brown trucks carry 55% of all e-commerce shipments, compared with Federal Express Corp.'s paltry 10%. And with UPS' years of experience moving millions of parcels a day, Net companies are asking it to handle their whole logistics kit and caboodle, from managing inventories to dealing with suppliers. "UPS is doing things in e-commerce that other companies are just starting to talk about," says Jack Staff, chief economist at Zona Research Inc. in Redwood City (Calif.).

Indeed, UPS will soon handle returns for e-tailer, requiring just a few clicks on the Web, compared with a week-long series of phone calls, faxes, and e-mails before. Using the Net, UPS is helping Ford Motor Co. get cars from factory to showroom floor in five days instead of nine through better tracking. And Compaq Computer has cut costs in its warranty program by 40% using UPS' help. All told, UPS' Web-powered logistics division should see $1.4 billion in sales this year, which Bear, Stearns & Co. analyst Edward M. Wolfe says may double by 2005.

UPS' e-commerce clout doesn't stop there. It's also using the Net to become a virtual banker, handling billing and payments electronically for e-tailers and other businesses. For a fee, the company will provide payment on COD shipments. Atlanta-based retail exchange AmericasMart is even using UPS to guarantee credit to shopkeepers buying furniture on its site. "That's expanding our market, enabling manufacturers to take a risk on smaller retailers," says Joseph T. Farrugia, chief of AmericasMart's online unit.

UPS wasn't always so smart. A decade ago, the venerable shipper was upstaged by FedEx, which was the first to let customers track packages using computers and private networks. FedEx' mistake was requiring corporate customers to use proprietary software that forced them to redesign their computer systems. Many companies balked, and "FedEx lost momentum," says Wolfe. UPS jumped into the breach. "We can deliver a message that a package has been received right into the electronic accounting system of any company," gloats Ross McCullough, UPS' executive vice-president.

FedEx isn't conceding anything to UPS. "We flatly disagree with those who say UPS is better than us in e-commerce," says Rob Carter, FedEx' chief information officer. Carter vows to match Big Brown's new services step for step. Will that be enough? With its growing lead, UPS looks set to deliver for a long time.