By Paul Ziobro
Carol Tomé took over United Parcel Service Inc. in the middle of
a pandemic that has sent demand for its services soaring. She's
teaching the delivery giant how to say no.
The longtime finance chief of Home Depot Inc. and first outsider
to lead UPS is remaking the company in her number-crunching image,
in part by adopting the philosophy that delivering less can be
more. And she is using the urgency created by the crisis to revamp
its business model in months, not years.
Since she became chief executive in June, UPS has become more
selective about which packages it ships. The company is tearing up
shipping contracts midterm. Sales leaders evaluate customers less
by volume than by what they deliver to the bottom line. Executives
are scrutinizing divisions for possible divestitures. Prices are
going up.
The push to transform UPS into what Ms. Tomé calls a "better,
not bigger" company has created friction. Big retailers accustomed
to UPS's accommodating stance found themselves facing tighter
shipping limits, especially during the crucial holiday season.
Others were hit by price increases. Meanwhile, analysts have
questioned whether UPS has become overly reliant on one customer,
Amazon.com Inc., especially since the e-commerce company is
building its own delivery network.
"There comes a point where you've got to optimize and sweat the
assets you have and really think about the economic model
differently," Ms. Tomé said in an interview earlier this month.
"We're 114 years old this year. It's time for us to pivot."
The plan paid off during the first peak season under Ms. Tomé's
watch. While some customers faced delays on pickups, UPS pointed to
third-party data showing the company outperformed rivals in on-time
deliveries in the lead-up to the holidays. According to ShipMatrix
Inc., a software provider that crunches shipping data, UPS
delivered 96.7% of packages on time in the five weeks before
Christmas, compared with 95.1% for FedEx Corp. and 93.2% for the
U.S. Postal Service. And it came as UPS marshaled resources to
start distributing vaccines around the globe to curb the
pandemic.
With the world mired in the second year of a pandemic, the pivot
arrives at a tricky time. Entire sectors, from restaurants to
travel, have crumpled under lockdowns and social-distancing
measures. Every business has had to change the way things are
done.
As the economy seized up, UPS and rival FedEx initially worried
their more profitable business of shipping parts to factories and
inventory to stores would crater amid widespread closures. Job
losses would crimp spending and economic activity. Teamsters union
leaders braced for job cuts.
Instead, business boomed on the back of an e-commerce surge.
While lockdowns hurt business-to-business shipments, store closures
shifted purchases of myriad items online -- paper towels to clean,
puzzles to entertain, desks to work at. They all needed a way to
get to homes. FedEx, UPS and the Postal Service stepped up.
"None of us expected the acceleration of e-commerce like we've
seen this year," Ms. Tomé said. U.S. online retail spending jumped
32% to $792 billion in 2020, according to the Commerce
Department.
Ms. Tomé, 64 years old, was a departure for a company
historically run by men, some of whom started out sorting packages
and worked their way up the ranks. Born in Wyoming, Ms. Tomé was
the oldest of four children and learned to hunt, fish, cook and sew
when she was young, according to a video memoir. She earned a
communications degree from the University of Wyoming, where she
skied often and met her husband at a toga party, before studying
finance and holding jobs in commercial lending and corporate
finance that would lead to her joining Home Depot.
In her 18-year run as CFO at the retailer, she built a record of
bucking convention. After years of building stores to chase growth,
Home Depot curbed new openings and focused on operating its
existing ones more efficiently as e-commerce reshaped shopping. It
sold divisions, closed stores and shed jobs. During the 2008
recession, the company halted pay raises for executives but kept
them for store employees and continued to pay out bonuses to them.
Profits rose.
She was one of three candidates for CEO in 2014 and stayed on
despite being passed over for the top job.
It is unclear how easily tactics that were successful for Ms.
Tomé at Home Depot can translate to a non-retailer. Some investors
from her Home Depot days have faith that she can replicate her
success, said Allison Landry, transportation analyst at Credit
Suisse. For others, Ms. Tomé still needs to prove it.
"They think she is great but are a bit concerned that just
because she did it at Home Depot, does that mean she can do it at
UPS?" Ms. Landry said.
The chairman of UPS's board, William Johnson, said Ms. Tomé's
leadership qualities and "extensive knowledge of UPS's business and
people" set her apart from a group of internal and external
candidates, and that her performance so far has validated the
choice. "Carol was absolutely the right person for this time at
UPS," Mr. Johnson said.
Her introduction to UPS's roughly 500,000 workers came as the
U.S. started shutting down. On March 12, the day after the National
Basketball Association suspended play and actor Tom Hanks revealed
that he and his wife had Covid-19, UPS announced a first for the
company: Its next CEO would be someone who had never worked
there.
Appearing in the corporate cafeteria at the company's Atlanta
headquarters and streamed to employees elsewhere, then-CEO David
Abney said in a speech that he would step down in June, then handed
the floor to Ms. Tomé.
Employees say the differences were stark. The towering Mr. Abney
speaks in a deep, droning voice. Ms. Tomé, they said, was a more
natural communicator. She was animated. She moved her hands when
she spoke. She swore.
"Right off the bat, you got the sense that this was going to be
a different leadership style," one employee said. The first woman
to lead UPS, Ms. Tomé is currently just one of 30 female CEOs at
companies in the S&P 500, according to Equilar Inc. (A 31st,
Jane Fraser, is to take the top job at Citigroup Inc. on
Monday.)
Five days later, UPS told corporate employees to start working
from home.
Ms. Tomé knew UPS, having sat on the company's board since 2003.
Some senior managers got their first exposure to her at an annual
management meeting in 2013, one former executive recalled, when she
shared her management philosophy, called servant leadership. She
viewed her job at Home Depot -- and now at UPS -- as doing all she
could to serve customers and allow employees to do their jobs.
She went out of her way in her first months at UPS to talk with
workers across all its businesses, asking them what worked and what
didn't. In those conversations she discovered that the company's
strict dress code, which banned beards or traditionally Black
hairstyles like Afros or braids, was making it hard to retain
workers.
So she relaxed the rules. UPS told workers it was part of an
effort to "celebrate diversity rather than corporate restrictions,"
according to documents reviewed by The Wall Street Journal.
It was a break from the top-down management philosophy of UPS's
founder and longtime leader, Jim Casey, who instituted a culture of
hard work and his own rulebook. Among Mr. Casey's tenets: Seniority
is king. Avoid left turns. No sneakers.
As Ms. Tomé assumed her role, UPS was hiring thousands of
workers to help with the surge in business -- and competing with
its biggest customer, Amazon, which was on its own hiring spree.
Packages shipped to consumers, which pre-pandemic represented more
than half the company's business, were rising 65%, while those to
businesses dropped by nearly 22%. That meant more stops, more miles
driven, more costs.
And the holidays were approaching.
Ms. Tomé said the circumstances "allowed us to stop and think
about how we are going to lean into this unique market."
One area of focus was prices. Costs to operate in the pandemic
were rising, as drivers logged overtime, new hires came on board
and new protocols and equipment were needed to keep operations
safe. Prices would have to go up, UPS told customers.
UPS started with surcharges on customers -- primarily big
retailers -- whose shipping volumes spiked significantly during the
pandemic. Later, realizing the pricing dynamics had moved in its
favor, UPS began canceling some contracts that were no longer as
profitable, using perfunctory exit clauses that shippers and
consultants say had been rarely, if ever, exercised before.
The higher prices carried over into the holidays, with
peak-season surcharges up to $3 a package for ground shipment and
up to $4 a package for some packages shipped by air. It also was a
period when UPS customers came up against the delivery company's
new mentality.
UPS had already been running near maximum capacity for months,
so the peak season, which hits a crescendo between Thanksgiving and
Christmas, posed an additional challenge. With more packages
entering a strained network, where would they go?
UPS's answer was to take the packages -- but only as many as the
two sides planned on together, effectively capping some customers'
use. It held customers to stricter shipping limits than ever
before, said numerous industry consultants, to avoid overwhelming
the network. That resulted in large retailers like Gap Inc. and
Nike Inc. facing temporary pauses on pickups in early December.
Gap and other retailers said pausing order pickups from stores
was part of plans they had developed with carriers to manage
capacity constraints during the holiday shopping season and worked
as expected.
Those plans were laid months before, when UPS started meetings
to prepare in earnest for a peak season like none before. Ms. Tomé
said she attended primarily to listen and observe, though she
encouraged some new practices, like having senior engineers visit
regions in person to assess readiness.
She also accelerated $750 million of spending to speed up the
network by October so that shippers could take advantage of the
improvements in time for the holiday season.
In October, with shipping volumes picking up as retailers
shifted sales events like Amazon's Prime Day earlier on the
calendar, Ms. Tomé and her senior leaders convened a "premortem" on
the peak season, with each executive coming up with their own
definition of what success would look like.
"This should just be the way we run peak going forward," she
said.
Sol Vizel, CEO of Brooklyn-based First Choice Shipping Inc., has
moved more of his business, which helps Amazon's third-party
merchants sell their products globally, to UPS over the last year.
He said that he was impressed with how the carrier was able to
navigate international shipping challenges, including those that
arose from the U.K.'s exit from the European Union.
"They are very well streamlined these days," Mr. Vizel said,
adding that he was impressed with their performance during the
holidays. "They were better than ever."
Other customers have gone elsewhere. The founder of an online
business-to-business distributor who just a year earlier moved more
of its shipping budget to UPS received notice during the holiday
season that the carrier was terminating its three-year contract in
30 days unless it renewed at 30% higher rates.
"They said the leadership change is the reason for their shift,"
said the customer, who has since moved business to FedEx on terms
similar to those it previously had with UPS.
While not addressing specific customers, Ms. Tomé said the
current environment, with too much demand for limited capacity,
means UPS needs to be paid adequately for its services.
"If the customer isn't willing to pay and they elect to leave
us, then we wish them all the best," she said.
The pricing shift highlights two new realities at UPS. Package
volume, which the company for years chased to fill its network, was
no longer paramount. Instead, UPS could pick better, more
profitable deliveries -- like heavier packages that cost more to
ship or shipments that tend to include multiple packages per stop
-- and turn away some accounts with lower margins, according to
analysts.
At the same time, Ms. Tomé is taking more of a retailer's
approach to UPS's 1.9 million customers, viewing them as a
portfolio that needs "segmentation." That means some larger
customers who may not require as many services, such as
warehousing, don't provide huge profit margins but do tender a
steady flow of package volume to keep the network full. On the
other side, UPS is focused on courting small and medium-size
businesses, which tend to need a wider spectrum of services that
UPS offers, to boost profits.
"Home Depot didn't make much money on lumber. They made more
money on the attachments that they sold on lumber," Ms. Tomé said.
"As we look at our customer mix, we run it like a portfolio, much
like retail."
At UPS, Amazon is providing most of the lumber. The e-commerce
giant paid UPS $11.3 billion last year for shipping services,
making up 13.3% of its $84.6 billion total revenue for the year.
That was up from 11.6% of all revenue in 2019.
Tied to her focus on "better" customers is more scrutiny on
costs. Early in her stint, Ms. Tomé passed on a chance to add to
the company's aircraft fleet since it would have forced UPS to find
cargo to fill the new jets. She acknowledged that UPS in the past
may have taken up the purchase in an arms race for capacity.
Likewise, she is also focusing on using all of UPS's existing
sorting capacity instead of investing in new superhubs that would
face a similar push to find more packages.
"At Home Depot, it was, 'Build a store and they will come,'" Ms.
Tomé said. At UPS, she added, "we were: 'Build facilities and
packages will come.'"
Soon after the holiday crush ended, Ms. Tomé struck her first
big deal -- one that will shrink her company. She agreed to sell
off UPS Freight, a division with about 14,500 workers and hundreds
of tractor-trailer trucks crisscrossing North America.
The division provides what are known as less-than-truckload
services, in which cargo from multiple customers is combined into a
single trailer. It is a fragmented and competitive market. UPS
Freight brought in about $3 billion in annual revenue but operated
at a 2.3% profit margin.
The less-than-truckload business "was like a loss leader" for
UPS, Alain Bédard, CEO of TFI International Inc., told investors
after he agreed to acquire UPS Freight. The Canadian company plans
to overhaul the fleet and renegotiate prices.
Ms. Tomé plans to disclose more cost-saving measures to
investors during a virtual meeting in June. Those could help soften
future price increases, as UPS shares savings with customers. It
was something she said Home Depot did. "I would love to do that
here," she said.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
February 26, 2021 05:44 ET (10:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
United Parcel Service (NYSE:UPS)
Historical Stock Chart
From Apr 2024 to May 2024
United Parcel Service (NYSE:UPS)
Historical Stock Chart
From May 2023 to May 2024