The Facts Behind United Parcel Service's New International Game Plan

There’s a huge consumer base away from the U.S. that can fast track United Parcel’s growth story. Can the company grab the opportunity?

Jul 4, 2014 at 1:11PM

Soon-to-be United Parcel Service (NYSE:UPS) CEO David Abney told Reuters earlier this month that expansion in emerging markets is "our No. 1 priority." So far the courier giant has focused more on its home market, which has led its international revenue to stagnate in the last few years. But market conditions are changing fast, and the company ultimately expects 95% of consumers to live beyond the U.S. 

UPS realizes that it has to step up its international game if it wants to generate sustainable growth in the years to come. Let's find out what has changed in the market, and what United Parcel's plans are.

File
United Parcel Service Boeing 747-123. Source: Wikimedia Commons.

Potential in emerging markets
To understand the lure of emerging markets, let's look at some recent projections and trends:

  • United Parcel Service believes that global economies will generate $50.2 trillion incremental GDP in the period between 2010 and 2025, and 74% of this growth will come from the emerging nations. In 2010, global GDP was $63 trillion, of which developed nations accounted for $40 trillion and emerging economies $23 trillion. By 2025 developed nations are likely to account for $53 trillion of GDP and emerging nations $60 trillion
  • A research note by Standard Chartered Bank noted that the World Bank estimates that the world's middle-class population will triple to 1.2 billion in 2030 from 400 million in 2000. The growth will come mostly from emerging markets such as China and India. The note also mentioned that the United Nations expects 60% of the global population to be urban by 2030, compared with 52% in 2011. Asia and Africa would be at the forefront of this transition. China has already emerged as the home to the world's largest urban population
  • According to research firm eMarketer, growth in the emerging markets will be driven by e-commerce boom, preference for online shopping, and eagerness of big companies to spread their brands globally. Increasing population and the choice of the Internet as a preferable medium for marketing could be the main driver for growth in the emerging economies

U
Source: eMarketer.com.

  • The BBC has reported that, according to estimates made by CNNIC, the Chinese Internet agency, half of China's 1 billion plus population access the Internet and 302 million people shop online. Bloomberg Businessweek has reported that Hong Kong-based investment bank CLSA has predicted that India's e-commerce market will increase from its current size of $3.1 billion to $22 billion within five years

Plan of action -- China
Outside the U.S., United Parcel Service has presence mainly in Europe, which accounts for nearly half of the total international revenue, but the company is upping its game in China. UPS entered the market in 1988, following rival FedEx's entrance in 1984. Presently, it has license to deliver parcels within few important cities, but it's trying to get approvals to reach more urban areas. It has two air hubs, in Shanghai and Shenzhen. 

In the past, UPS concentrated more on Chinese exports and infrastructure, but now it has started concentrating on consumption with technology, retail, industrial production, and aerospace as its target markets. Recently, the courier giant opened a new contract logistics distribution warehouse near the Beijing airport, the company's third facility after the contract logistics centers in Chengdu and Shanghai. This will allow the company to compress the processing time for all contract logistics orders throughout China.

The decision to open an additional facility was strategic. According to market research firm Transport Intelligence, China could lead the Asia-Pacific's contract logistics market by 2016, driven by increases in middle-class domestic consumption; UPS could be a big beneficiary of this growth. 

Other initiatives
In 2013, United Parcel Service created a new team focused specifically on emerging markets. It has also expanded its service offering in all the 220-odd markets that it serves. The company entered into a joint venture in Vietnam, becoming the first foreign carrier to offer service in the region. It also bought a Hungarian health-care distribution company called CEMELOG. Abney, the UPS COO who takes over as chief executive on Sept. 1, said the company would continue to invest in building more capacity in emerging markets. Apart from e-commerce, the company wants to increase its presence in the health-care sector.

Foolish last thoughts
With emerging markets contributing more toward world GDP growth with every passing year, it's become imperative for UPS to increase its footprint in these nations. The company derives one-fifth of its revenue from Asia, but if the market evolves as predicted, this number can grow significantly over the coming years.

Once this mobile tech takes off, transportation as we know it will change
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn’t one of them. He recently called it a “real threat” to one of his favorite businesses. An executive at Ford called the technology “fantastic.” The beauty for investors is that there is an easy way to invest in this mega-trend. Click here to access our exclusive report on this stock.

ICRA Online has no position in any stocks mentioned. The Motley Fool recommends United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers