End-of-year time, lots of deliveries for, among others, United Parcel Service (UPS). Shares have been trading lower for most of the year.
Not quite 52-week lows, but shares are trading towards the lower end of 52- week range.
Not going all-in. But seems like a good time to pick up shares in a reasonably safe dividend play.
Make sure I’m clear; I have no particular insight into this business except as a receiver of packages, so take this FWIW. But I wonder if “low end of the range” is really the low end of what’s gonna be.
UPS used to have a virtual monopoly on “packages to home”, at least until FedEx came along and the USPS realized they were missing the boat and ramped up.
Then came Amazon, their biggest customer, now their biggest competitor - sort of. Amazon delivered more packages than UPS in 2022 and since then the gulf has only widened. One of the threats to UPS is if Amazon wakes up one morning and decides to get in the package delivery business for others.
You know, like they did at the beginning, moving from private warehouse space to owning their own. And from renting someone else’s big computers to having their own, and then renting them to outsiders. And from selling their own products to letting others use (and eventually buy) space in their warehouses and website, and so on. Think Borg.
As it turns out, there is a decent business in transporting stuff for distance, but a lot of people have discovered a good one in cream-skimming that “last mile” that everyone thought was going to be so hard. There are like 30 real entrants in that game now, and more coming. Running the toll bridge between retailer and front-porch winds up requiring little capital: the retailers eat the inventory costs, and the drivers put up the capital for the vans. All they have to do is connect the two - like AirBnB or Uber or whatever.
https://getcircuit.com/teams/blog/last-mile-delivery-companies
Here’s a partial list: note that one offers 2000 deliveries for $550. Now that’s area limited and there are other things but it’s cream skimming where it’s efficient, and leaving it to USPS and UPS where it’s not. And they’re pricing at 50¢ a pop, plus or minus.
Maybe the market knows something here. And maybe I’m completely wrong, it sure wouldn’t be the first time.
12/26
Been offline about two weeks. Just saw a news report that indicates competitor FedEx (FDX) is planning a spin-off of its trucking business. In the FedEx case, it is touted as “unlocking value”.
TBD whether this is an advantage or disadvantage to UPS.
[Edit: If it becomes a disadvantage, UPS could also reorganize to unlock value]
Now we have a proposal to privatize the US Postal Service after UK privatized the Royal Mail Service.
Amazon’s method is a threat to all. Their drivers are contract workers who get $20/hr with no benefits. Both USPS and UPS should be worried.
I can’t imagine unions allowing this without a big fight.