Even though the future for UPS (NYSE: UPS) looks bright it will have to deal with some major threats along the way.
There are dangerous new competitors out there and trends in retail that threaten UPS’s business. The company’s heavy dependence upon online retail is a double edge sword because that market can vanish quickly.
Despite the good omens there are some very dark clouds on UPS’s horizon including:
- The growth of store pickup of items ordered online. Walmart is making a major push into this and Amazon (NASDAQ: AMZN) is expanding its brick and mortar footprint by building stores and trying to acquire Whole Foods (NASDAQ: WFM). The Whole Foods stores can be used as pickup locations for merchandise ordered through Amazon. This is a huge problem because it would allow retailers to provide their own logistics with existing fleets of trucks.
- Some retailers are developing their own logistics and delivery solutions. Walmart is experimenting with delivery by employees, several companies including Amazon have deployed fleets of branded delivery vehicles and companies like Kroger and Walmart are experimenting with Uber and Lyft delivery. Amazon is also buying its own fleets of trucks and planes.
- Next generation delivery solutions including those offered by Uber, Lyft, Deliv, GrubHub and Google Express. Some of these might be cheaper because they use independent contractors instead of union drivers and rely on the drivers’ own vehicles. GrubHub (NYSE: GRUB) which has a successful nationwide delivery service is an underappreciated menace to UPS so far it is only delivering food - but what happens if it starts hauling groceries or package?
- Apps. Companies like Walmart and Amazon might be able to quickly develop and deploy new delivery apps. That would allow them to quickly assemble large forces of delivery drivers and build massive delivery networks. A major threat to UPS would be Amazon teaming up with other retailers; such as Kroger or Walgreens, to offer same-day delivery nationwide.
- Better information technology. A major menace is blockchain and next -generation cryptocurrencies such as Ethereum. Ethereum; and its Chinese competitor NEO, can be used to create smart documents that can be used to replace paper contracts. This might wipe out what’s left of UPS’s document delivery business.
- Better tracking of shipments would allow more companies to enter the delivery business quickly. For example trucking companies might deploy apps that would allow contract drivers to take merchandise directly to customers.
Despite the potential threats, UPS is still a great investment. I consider it a modern day and widows’ stock. You would be well advised to buy it.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.