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Strike Might Redefine Market Mix
UPS Rivals Playing for Keeps

(ABCNEWS.com)

N E W   Y O R K —Like victims of a hurricane who didn't believe the damage could be so devastating, millions of United Parcel Service customers are discovering how crippling a strike at the nation's leading package-delivery company can be.
     And as the strike drags into its second week, UPS' competitors, including Federal Express, Emery World (a division of publicly traded Consolidated Freightways), and DHL Worldwide Express, are scurrying to pick up some of the 11.5 million packages normally handled by UPS and its striking workers. Looks like a rare aperature through which many companies hope to pull new clients away from the big dog in brown.
     But once the dust has settled, who will the customers turn to for their shipping needs? Will they return to the tried and true men and women in UPS brown, or will they stay with the competitor they were forced to turn to during their time of need?
     "There's a high probability that UPS is on track to lose a share of their customers, but how much nobody can tell," says one analyst who closely follows Federal Express, but asked not to be identified. Some UPS customers will vent their frustration by jumping just fractionally, says the analyst, adding that "chances are they're not going to take 100 percent away, but for customers who send 98 percent of their business through UPS, they may now only send 96 percent, or 94 percent."
     Some shippers will lean on other companies, in part to prepare for UPS problems that may arise in the future.

New Loyalties Built
Jeffrey Pittsburg, an analyst with Goldis-Pittsburgh International Services, says consumers are moving beyond finding an immediate solution to their shipping troubles and are actively scouting for a permanent alternative to UPS. "Those companies … are starting to stand back and look at the big picture. The world is not the same as it was two weeks ago."
     And so they begin building new relationships with shipping companies. The ongoing strike has caused a powerful industry shift, which UPS acknowledges is dragging more and more customers away for good.
     UPS' competitors, however, are taking a cautious approach. Federal Express, for instance, which has probably benefited the most from the strike—its average daily volume of 2.8 million packages has jumped to 4 million a day during the strike—is taking a wait-and-see approach to the situation.
     "Ultimately the customers are going to decide who they wish to ship with," says Greg Rossiter, a Federal Express spokesman. Which is not to say the company is sitting around. It's added hundreds of additional trucks to its fleet of 38,000, is chartering additional planes to supplement its fleet of 600 aircraft, and is paying workers overtime.
     "As for what customers will do once the strike is over, nobody knows. No one can predict the future," Rossiter says. And these higher FedEx rates will no doubt become a factor once the strike is over.

Feeling the Striker's Pinch
Bristol-Myers Squibb is now paying an average of $47 per package to ship via Federal Express overnight air service, far more than the $5 tab with the typical UPS ground delivery.
     And over at Johnson & Johnson, an insider there says that the pharmaceutical giant is now spending $100,000 a day on shipping, a hefty 50 percent increase in these expenses. A company spokesman would only confirm that Johnson & Johnson is spending more, but declined from saying how much.
     "We have 170 different companies, some barely use UPS, some use it pretty heavily," says company spokesman John McKeegan. "For our professional companies, like the pharmaceutical companies, they've moved to other shippers and looked at alternative means and as a result may be paying more."

Looking Forward to This Afternoon
But as for what will happen once the strike is over, McKeegan says Johnson hasn't made any decisions. "Right now," he says, "our guys are concerned with getting the packages out."
     Not all package-delivery firms are jumping in to fill the vacuum left by the UPS strike. Two of UPS' competitors, Seattle-based Airborne Express and Philadelphia-based Roadway Package Systems, a division of publicly traded Caliber Systems, stopped taking new customers prior to the strike. With limited capacity and a desire to keep existing clients happy, both say they're only catering to those existing customers.
     "We're not signing any new customers now," says Tom Branigan, an Airborne spokesman. "UPS moves nearly 12 million parcels a day. There's no way for any company in the transportation industry to absorb all of that. We felt it was better not to jeopardize our current customers by trying to."
     But it's benefiting from the strike, nonetheless. Airborne now moves an additional 400,000 packages a day, up nearly 35 percent from its average 1.3 million daily volume. Almost all of this windfall is from current customers who have shifted their UPS business to Airborne. "After this is over, we'll have to see what happens," Branigan says. "Sure, we'd love to keep the new business, but we'll have to see where the customers go. We're not even speculating."

Measured Response
Bram Johnson, a spokesman for Roadway Package Systems, which handles more than 1.5 million parcels a day in North America, says the company is sticking to prudent ground. "After the strike, we may go after new customers, but it would depend on our capacity."
     A short-term surge in business during this shipping crisis could ultimately harm the company's core operations, he says, which led to the company's decision to turn away new clients. "You have to offer value and the customers have to see a good reason to use you. If you're the only game in town, that's not enough of a reason."
     Regardless of who reaps the benefits now though, the jury still remains out on the future of UPS.
     "UPS is very efficient. Customers do not have a lot of problems with them," says Pittsburg. "[But] I believe that the average small- to medium-size firm will no longer use just one provider. The longer it takes [to settle the strike], the more chance these other companies have to take business."

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