Market changes UPS -- Delivery service finds global mission

ATLANTA - It started out in 1907 as the brainchild of twoteenagers in a Seattle basement, whose fledgling messenger servicemade deliveries on foot or on bicycle.

As UPS celebrates its 100-year anniversary later this month, itnow is the world's largest shipping carrier - a $47 billion businesswith a fleet of trucks, an airline and operations in 200 countries.

Increasing competition for delivery of goods has meant the

company has had to broaden its global reach and expand beyondsmall package delivery to shipping heavy freight and providinglogistics services for companies.

But even as the Internet has made it easier to send, receive ordownload items electronically instead of paying a service to deliverthem, the breaking down of trade barriers has given shippers likeUPS overseas opportunities they haven't had in the past.

Edward Jones analyst Dan Ortwerth described UPS as the "oil thatmakes the gears go" in the global economy.

"Regardless of whether I want a leather jacket sent to me by UPSbecause I bought it online, or a factory in any country you'd liketo name needs a sprocket to make its machine go, UPS is there todeliver," Ortwerth said.

These days, the U.S. small package delivery market has slowedalong with the economy. As a result, UPS has been looking beyondU.S. borders, offering faster delivery to worldwide destinations.International growth has helped the company's bottom line.

Last month, UPS reported a 4.1 percent rise in second-quarterearnings on a modest increase in sales. The company's shares, on anadjusted basis, are up more than 14 percent over the last year.

A century from now, chief executive Mike Eskew expects thatdelivering small packages will still be an important part of theAtlanta-based company's business, but he isn't sure it will be thelargest part.

In 2001, the company expanded its services by acquiring the MailBoxes Etc. chain. Most of the stores were renamed The UPS Store.

"We're going to transform as the world changes and our customerstell us to change," Eskew said.

Recognized by its brown trucks and uniforms, UPS' lifeblood isits 427,700 employees, who will play a big role in growth. UPS, alsoknown as United Parcel Service, said that's because customer service- particularly drivers having contact with customers every day -will be the area that keeps customers coming back.

As a result, much focus has been on labor talks betweenmanagement and the unions that represent the majority of UPSemployees.

A year ago, the pilots union approved a new contract with UPSthat included hefty pay raises, large signing bonuses and higherhealth care premiums. The deal, reached after more than three yearsof talks, ended a lengthy battle that included walkout threats.

Contract negotiations between UPS and the Teamsters union, whichrepresents 238,000 UPS drivers and sorters, are ongoing. Thatcontract expires July 31, 2008. Pension and health benefits aremajor issues.

Linc Dalimonte, a UPS driver from Grand Rapids, Mich., said herecognizes the importance in a highly competitive industry ofcontrolling costs.

Dalimonte, who has been with the company since he finishedcollege 15 years ago, said he believes UPS can do that by continuingto emphasize safety, which would decrease accidents and the costsassociated with them.

"The job of any delivery driver, whether it is UPS or FedEx, justto get up in the morning, we're basically industrial athletes,"Dalimonte, 37, said. "It's not user friendly on the body."

Dalimonte often sees trucks from Memphis-based FedEx on hisroute, but it doesn't faze him.

"Other companies can come in and even make a bid lower than us,but can they compete with the service?" Dalimonte said.

Technology improvements, meanwhile, have led to greaterefficiencies. UPS uses technology to map out the shortest routes forits trucks to reach their destinations. The technology and greateruse of alternative fuel trucks have allowed UPS to save on fuel,according to Robert Hall, director of ground fleet engineering atUPS.

In 2006, package flow technology, the software that among otherthings designs routes with right-hand turns, allowed UPS to save28.5 million miles of driving off its U.S. fleet.

"We're trying to be proactive," Hall said. "At the same time, werecognize we have to extend the current supply of oil we have."

Eskew, who has been with UPS for 35 years, said keeping costsdown and people happy is a challenge.

According to the company, the average UPS driver has been withthe company for 16 years.

Management turnover runs 5 percent to 7 percent per year. Thecompany says its average driver is paid $75,000 a year, while itsaverage pilot salary is $200,000 a year.

"We want to be able to compensate the employees for the greatthings they do, but also think about the next generation of UPSers,"Eskew said.

The company said it is willing to give pay raises, but it mustput any raise in the context of its overall cost structure so it canstay competitive.

There was competition even in 1907, when 18-year-old Claude Ryanand 19-year-old Jim Casey opened the American Messenger Company witha $100 loan from a friend of Casey. Working out of their basement inSeattle, employees - Casey's brother and a handful of otherteenagers - ran errands and carried notes on foot or on bicycle.

In 1913, the company acquired its first delivery car, a Model TFord, renamed itself Merchants Parcel Delivery and shifted its focusfrom messages to packages.

Six years later, the company expanded beyond Seattle and renameditself United Parcel Service.

The company, which moved into its Atlanta headquarters in 1994,went public in 1999. It rebranded itself as just UPS in 2003.

To mark its centennial anniversary - officially Aug. 28 - UPS hasbeen holding events around the world. Eskew has attended many, andhe is marking his own 35th anniversary with the company.

The CEO also will be picking out an anniversary gift from acompany catalog; he's thinking about selecting a bicycle, whichwould be symbolic considering the company's beginnings.

But Eskew isn't making any predictions of when he might move on.

"At some point you think, we all think, it's time to let somebodyelse do this," said the 58-year-old. "Somebody else might have adifferent, fresher approach."