Every boxing fan has an opinion of what the best heavyweight fight was. Louis - Schmelling, Ali - Frazier, Holyfield - Tyson. They were all epic battles. But for my dollar, the best heavyweight fight is the one currently taking place between the two premier combatants: one dons brown trunks while the other one wears purple. You can think of it as, �The Battle of the Surcharges.� Some might think it�s a somewhat boring fight because no matter what tactic or maneuver Big Brown employs, Purple does the same. Kind of like shadow boxing but, in this case, the shadow hits back! Fair enough. But there is a lot more action in this slugfest.
When it comes to heavyweights, there are few as dominant as Brown and Purple. Brown employs 357,000 people and generates close to $35 billion in revenue annually, while Purple rakes in close to $25 billion, with a work force of 218,000. Did you know that UPS� revenue is greater than Microsoft? Yes, mighty Microsoft! How about more than double the revenue of McDonald�s! You can combine the revenue of Anheuser-Busch and United Airlines and you still won�t reach Big Brown. We�re talking a true heavyweight!
Back to the bout, Brown continues to grow its express business at the expense of Purple, while Purple grows its ground service at the expense of Brown. They are trading blows, knocking each other silly� all the way to the bank. And they won�t stop battling until they get more. Both are branching out into new markets to maintain their growth.
Big Brown delivered a hard right hook in 2001 by acquiring Mail Boxes Etc. and its 4,500 retail locations. Before the bell sounded, The UPS Store was established and Brown went retail in a big way. Not to be outdone, Purple countered last year by purchasing Kinko�s for a whopping $2.2 billion plus $200 million in debt assumption. Kinko�s has 1,200 copy-stores and, according to Purple, could easily double the number of stores. Look for Kinko�s stores to be used as drop-off locations for local deliveries for small companies or individuals that are not always available to receive their packages. Needless to say, that would go a long way toward reducing carrier delivery expense. Additionally, Purple will make every effort to offer postal services at Kinko�s in a similar fashion to The UPS Store. As you may recall, purple drop boxes now exist outside post offices around the country, and they are currently contracted to transport Express and Priority Mail for the USPS. These acquisitions are not designed to transform the carriers into something other than parcel delivery giants; rather, this battle is over small- and mid-sized business customers that generate highly profitable revenue. No discounts, no pick-ups and plenty of delivery surcharges mean juicy profits. Make no mistake about it; these guys are trolling for easy profits and, in their minds, retail locations are just what the doctor ordered.
What subsidizes these expansion efforts is the tidy profit each carrier realizes from its daily operation. It doesn�t hurt matters that they can adjust their annual rate structure to maximize revenue while keeping a content customer base. �Sur-CHARGE!� seems to be the rallying cry these days. It�s pretty cool when you can simply add new charges because you�re in the mood. Kind of like a license to print money!
Well, like all great title fights, rematches are the norm. As the two giants plan their next strategies, it is always interesting to speculate about their future moves and how they will impact the market-place! Whether it�s through new technologies or services, it will be fun to watch our industry change.
Joe Loughran is president of SmartTran, Inc. and an expert in parcel carrier rate analysis. Joe can be reached by phone at 724-934-0626 or by e-mail at loughran@smarttran.com.
