UPS Pickup Locations Could Be Essential To Improving Profitability

United Parcel Service is likely to save millions of dollars each year with a new service that allows customers to pick up packages at local businesses rather than their doorsteps. As part of the service, which the company began testing in a handful of U.S. cities in July, customers can order products online and have the goods delivered to a dry cleaner, convenience store, pharmacy or other designated location instead of their doorsteps, where packages are prone to theft.

UPS said Wednesday that the service is up and running in New York City and Chicago, and it plans to expand the service nationwide next year. When no one is home to receive a delivery, UPS drivers will leave a note informing customers of a time when they can expect to collect their package from a nearby “Access Point” location.

The ever-changing habits of U.S. shoppers are prodding UPS to come up with new offerings. Online shoppers are more costly to serve compared with the large and small businesses that have historically made up the majority of UPS' customer base. Customers ordering from home usually receive fewer packages per stop. And since they often are not home when a driver rings the doorbell, residential customers tend to require more return visits than businesses that are staffed during regular daytime hours.

The Access Point locations “should help the firm address in some measure the relatively higher cost of delivering packages to consumers,” said Keith Schoonmaker, CFA and director of Industrials Equity Research at Morningstar Inc.

Fuel and labor costs are likely to decrease as drivers trade in the time they spend trying to deliver packages to empty homes and instead drop off bundles of packages at Access Point locations. According to company data, shedding one minute per driver each day saves UPS about $14.5 million a year.

The service could also help UPS avoid overwhelming its drivers with more packages than they can handle during the busy holiday season, as seen last year when UPS delivered thousands of Christmas presents late.

Deliveries to U.S. homes represented 60 percent of the company’s parcel volume just before Christmas last year, an all-time peak. That compared to a norm of 40 percent on average and 20 percent a decade ago, according to Morningstar.

The Access Point locations are in the Bronx and Brooklyn in New York and in neighborhoods north and west of downtown Chicago, a UPS spokesperson said. Next year, UPS will also use its 4,400 retail stores nationwide as drop off and pick up locations, similar to how its competitor FedEx uses FedEx Office locations.

The company may discuss the new service’s impact on profits in its third quarter earnings report Oct. 24 and its investor conference Nov. 13.