UPS: Leaders of the Package - [Business Breakdowns, EP. 46]

Feb 9, 2022

Matt Reustle, a former transport analyst at Goldman Sachs, brings his expertise to the discussion on UPS, a century-old giant in logistics. He highlights UPS's significant role in the U.S. economy and its intricate logistics network, shedding light on the fierce competition with Amazon and FedEx. They probe into UPS's strategic shifts, from business models to leadership changes, emphasizing operational efficiency and challenges amid the e-commerce boom. Reustle also shares insights on market dynamics and how UPS plans to enhance returns in a transforming landscape.

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INSIGHT

UPS's Economic Footprint

UPS delivers 3% of global GDP daily, highlighting its massive impact.
It's a complex global logistics network, going beyond last-mile delivery.

INSIGHT

Key Metrics for UPS

Investors primarily track UPS's operating margins, influenced by e-commerce.
E-commerce growth adds costs like labor for sorting and delivery, impacting margins.

ANECDOTE

Logistics Networks and Barriers to Entry

Building a single fulfillment center costs $400 million, requiring a network to compete.
UPS uses a hub-and-spoke model, optimizing package delivery across the US.

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I'm Zack Fuss and today we are breaking down UPS. With over 100 years of history, it's a business we all know as consumers and one many of us interact with on a daily basis. But in investing circles, UPS carries far less relevance and attention share despite its large market cap. To break down UPS and its rich history, I am joined by former Transport Analyst Matt Reustle. Please enjoy this breakdown of UPS.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:02:37] - [First question] - The footprint of UPS in the US economy

[00:04:11] - What relevant metrics analysts use to understand UPS’ value

[00:06:57] - How logistics networks work and operating leverage on their fixed assets

[00:10:43] - UPS’ origin story and key differences between it, Amazon, and FedEx

[00:18:24] - Whether or not Amazon is consuming the market or if the market is growing

[00:22:20] - Decreased return on capital and the roadmap to increase returns going forward

[00:25:14] - Making a decision to lean into their network and what it meant for their customers

[00:27:33] - The importance of management and needing outsider management

[00:31:40] - Capital investment programs and what Amazon’s growth means for UPS

[00:34:41] - Secular changes versus historical cyclicality of fulfillment businesses

[00:36:35] - Competitive impacts Amazon and USPS could have on UPS’ future success

[00:42:26] - Why cross-border delivery is such a lucrative aspect of this market

[00:42:51] - Lessons for investors and builders when studying UPS’ story