The United Postal Service (UPS) recently announced that it will spend more than $1 billion this quarter on the acquisition of two companies to increase its reach in e-commerce and bolster its revenue. Currently the largest parcel delivery firm on the globe, UPS has been grappling with increasing competition from rival delivery companies such as FedEx, DHL, DB Schenker and the federal agency United States Postal Service.
In late October, UPS cut its revenue projections for the year citing lower demand in the e-commerce sector. The impending $1 billion acquisitions are most likely an attempt by UPS to boost its e-commerce sales volumes and increase profits.
Last week, UPS said it had signed an agreement to purchase Happy Returns, a platform that offers box-free returns to hundreds of merchant customers, from PayPal. A month before that, the parcel delivery giant signaled that it intended to buy MNX Global Logistics, a healthcare specialist that offers global logistics and shipping services.
UPS recently completed the acquisition of MNX Global Logistics and is actively working to regain the customers it lost during the U.S. labor talks. The parcel delivery company saw its average daily package volume drop by close to 10% as many customers switched to FedEx during the tumultuous talks.
According to former UPS executive and University of Tennessee Global Supply Chain Institute distinguished fellow Alan Amling, the company’s high-cost network requires a high-margin business to be financially feasible.
Analysts believe Happy Returns could deliver the high margins UPS desperately needs as it operates in the profit-heavy parts of the relatively low-margin e-commerce delivery market.
CEO Carol Tome says the company is putting “the pedal to the metal” with the Happy Returns acquisition as online order returns are a huge business. Around 20% to 30% of all online retail purchases are returned at an average cost of $33 per return, Tome said. Company executives say the Happy Returns acquisition will allow UPS to reduce product return costs for its customers and UPS itself by combining returned products that would have been transported separately.
UPS notes that around 5,200 store locations around the world and more than 12,000 locations in the country will join Happy Return’s designated drop-off points.
Amling says the Happy Situation will put significant pressure on FedEx. The MNX acquisition will also put FedEx in a tough spot as it will expand UPS’s reach in the healthcare segment where FedEx also operates. MNX’s specialty is shipping temperature-controlled products such as cancer drugs and vaccines as well as radiopharmaceuticals that are used to diagnose and treat various diseases, giving UPS access to a segment with extremely high margins.
The foray of UPS into healthcare e-commerce suggests that healthcare e-commerce companies such as NextPlat Corp. (NASDAQ: NXPL) (NASDAQ: NXPLW) could see the entities they work with making use of the expanded service offerings of UPS to this segment.
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