UPS outsources to Uber

United Parcel Services (UPS), the logistics titan, shocked investors today by announcing a deal with Uber that will transfer domestic pickups and deliveries to the San Francisco start-up. UPS simultaneously issued termination letters to most of its 240,000 drivers. This represents a huge win for Uber as it seeks to apply its growing ride-share platform to the massive domestic courier and delivery market.

Scott Davis, the Chairman and CEO of UPS, defended the move at a press conference by saying: “Times are changing and we need to change with them. UPS has been paying its drivers more than $70,000 per year plus benefits and we can now run our last mile through Uber’s platform for less than $20 an hour. If we can save more than $30 million by avoiding left-hand turns, imagine how much we can save by not maintaing a fleet…or paying benefits and pensions.” UPS’s market cap surged to an all-time high upon the announcement. James Hoffa, President of the Teamsters, furiously opposed the decision: “Davis is an S.O.B.! UPS is the largest employer in the union and this decision blows up the largest collective bargaining agreement in North America! We demand that UPS rehire these drivers with 5% pay raises!”

Uber simultaneously inked a parallel deal with the United States Postal Service (USPS) to provide Uber with access to more than 210,000 vehicles. The press announcement stated that the Google Ventures backed startup was excited to begin delivering billions of packages and has tapped into the largest civilian vehicle fleet in the world to do it: the mailman’s car. Under the terms of the deal, USPS will lease the unused mail trucks to Uber, which will leverage its UberX network to source tens of thousands of new drivers. Patrick Donahoe, USPS Postmaster General and Chief Executive Officer, was equally excited about the deal, saying: “Listen, we lost another $5 billion last year, I’ve got Congress playing games with the budget by pre-funding my pension and demand for our bread and butter is tanking: first-class mail is down more than 25% since ’06. I’m open to ideas and if we can make extra cash by renting out the mail trucks, then that’s what we’re going to do.” He continued to defend the 3 cents stamp hike to 49 cents, which is the largest increase in more than a decade, as the “right price” to justify someone coming to your house everyday in case you have something to mail.

— end fantasy —

With disruption theory all the rage, it will be interesting to see what happens as Silicon Valley darlings build massive, peer-to-peer logistics platforms directly under the noses of longtime incumbents. Heavily burdened by legacy asset structures, ballooning pension obligations and collective bargaining agreements, these companies may not be so quick to adapt to changing market conditions. Today, USPS continues to be “the core” of the $1 trillion mailing industry, as well as the most efficient post office in the world. With more than 150 billion pieces processed last year (in comparison to 4 billion for UPS), I don’t see the mailman hanging up his hat anytime soon – regardless of how much Congress tries to micro-manage it. UPS, on the other side, continues to spend north of $1 billion a year on technology to improve efficiency. It’s managed to stay relevant since the initial $100 investment in 1907 and has come a long way since acquiring its first delivery truck, a Model T, in 1913.

That said, a number of new entrants are working to crack the lingering “last block” problem for customers, who still find it cumbersome to mail and receive packages. The points are obvious. To ship something, nobody likes the materials treasure hunt (right-sized box, tape, bubble wrap, labels, etc), waiting in lines and using an abacus to compare the various pricing structures. To receive something, you have to complete a new treasure hunt to find which bush is hiding your package or, even worse, play virtual tag through the dreaded “missed delivery attempt” window stickers. These problems will compound and as online e-commerice breaks $1.5 trillion this year (up 20% and not slowing). A few weeks ago, I needed to ship a laptop from San Francisco to Hong Kong. USPS charged me $85, which is a great price, although I had to: wait in line three different times with two different forms, buy two different boxes and pay $3.99 for an entire roll of tape. UPS, which had a shorter line, wanted $350 to get it there before packaging and insurance.

This week, when I had to mail something, instead of leaving home I pulled out my phone and summoned a “hero” using the Shyp mobile app. In less than ten minutes, my unboxed items were picked-up from my door and taken away to be mailed for less than $20 after postage. I understand that USPS is likely running the backend (and does have its own pick-up option), but if Shyp can find profit sustainability through bulk mailing discounts, then I won’t need to visit the post office again. Swapbox, another San Francisco player, offers kiosks (similar to Amazon’s Lockers), to put a different spin on sending and receiving packages from local drop points. The model is similar to BufferBox, which was acquired and (subsequently) shut down by Google. Time will tell if these logistics upstarts (including Postmates and dozens of others) or larger entrants (Google Shopping Express, Ebay Now, etc.) will make a dent in this industry, but I’m hoping they will. I’m certainly not an expert here, but my guess is that the future of shipping may not always be long lines or big brown vans, no matter how many rolls of tape are sold or left-hand turns are avoided.