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Instant Analysis: UPS Eyes Same-Day Delivery with Investment in Startup

By Armun Asgari - Feb 25, 2016 at 10:38AM

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The shipping giant acknowledges same-day delivery is a concern by investing in Deliv Inc., a crowdsourced delivery startup out of Palo Alto.

What happened? 
United Postal Service  (NYSE: UPS) was the standout investor in the most recent round of funding for Deliv, a four-year-old start-up specializing in same-day delivery to connect brick-and-mortar stores with their customers. UPS' exact contribution to the $28 million round was not disclosed, but it did secure a seat on the young company's board. After this funding round, Deliv will have raised $40.5 million.

The investment is notable given that UPS' same-day delivery offerings have not typically been used for retail merchandise due to logistical impracticalities and costs, unlike its next-day options. But as consumer behavior changes and retailers begin acknowledging that there is a demand for even faster delivery, that may change.

Does it Matter?
UPS' participation signifies it is sharply aware of the trend toward faster and more dispersed delivery methods, popularized by companies like Amazon (AMZN 2.07%), Instacart, and Uber.

As retailers frantically explore ways to keep pace with Amazon's gold-standard delivery times, a successful strategy has been to decentralize the supply chain using omni-channel retailing. This entails doubling storefronts as localized "warehouses" that can package and ship excess inventory to nearby customers who place orders online, dramatically cutting down delivery times.

But for the model to work efficiently at same-day speeds, those retailers need access to agile, on-demand, and affordable delivery options. This is where companies like Deliv come into play.

Deliv differentiates itself from traditional delivery companies like UPS by utilizing contracted drivers to reduce costs, passing down the savings to customers (similar to Uber or Lyft). The company also facilitates an easy integration into retailer's existing checkout interfaces, allowing customers to pick a delivery window and track their package through the entire process in real time.

Given the trends, it's tempting to suggest UPS' investment is an attempt to penetrate the same-day delivery field for retail. The reality is that this is just a drop in the bucket for the delivery giant – the company reported a cash balance of $4.7 billion  in their most recent filings.

It's an opportunity for UPS to better understand an increasingly relevant field by getting a direct peek inside a potentially viable business model. It provides the logistics arm with access to software, data, and early expertise that the company would otherwise have to build itself – likely at a much higher cost.

Armun Asgari owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com. 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.

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