Q&A: Alan Gershenhorn, UPS Chief Commercial Officer

Editor's note: This interview was conducted in early May in Louisville, Kentucky at the Packaging Innovation Center operated by UPS and packaging services provider Sealed Air. 

Logistics Management (LM): Reducing cube size and package size in order to fit more items on a trailer, van, truck, or plane and be more efficient are key components of dimensional pricing. Is that in turn resulting not only in better yield but also better economies of scale?

Alan Gershenhorn: When I first started with the company 38 years ago, we ran 45-foot trailers and the general rule of thumb was 1,500 packages. If you put an unloader in that trailer, you think that will take an hour and twenty minutes or so, but then you come back and it is three hours. It is not because the unloader is unproductive, it is because that trailer has 3,000 packages in it. That was unheard of a while back. Two things are happening. One is the size and contents moving through small package are getting smaller, and second our customers are becoming more effective at managing to that and shrinking the size of their boxes.

LM: What else are you seeing on that front?

Gershenhorn: Because of the secular changes that are occurring, we have had to make adjustments in our dimensional weight factors in order to make the revenue manage the costs. Dimensions of the package are a far greater indicator of the cost driver than weight. So we made those changes and at the same time we wanted to let our customers know that we are here to help them problem-solve that, if it is possible as some times the good is the good. If it is possible, we want to look at ways to shrink the size of the packaging. Not only do you save on shipping, you also save on packaging.

LM: On the UPS Q1 earnings call, you noted that the company’s B2B growth from quarter to quarter showed improvements in getting B2B levels back to where they needed to be. What are some of the things going on in sustaining measured B2B growth?

Gershenhorn: The B2B market for small packages is growing much slower than e-commerce B2C. In the fourth quarter, we were down, and in the first quarter we were still down but cut back by about half. We saw some strength in healthcare and some of the other segments but the headwind in the first quarter, we believe, were a lot of the retail store closures. The reason is retail is also a significant contributor to B2B, whether it is ship to store for e-commerce or ship to store for fulfillment. We are real focused on B2B solutions. How we are going to win is by creating more value for B2B prospective customers and our existing customers…whether it is industrial manufacturing or high-tech or healthcare, we have a host of solutions that are already out in the marketplace and we are busy coming up with more.

LM: Like Saturday delivery?

Gershenhorn: Yes. There are plenty of manufacturers and B2B customers that work on Saturdays and appreciate Saturday pickups for Monday deliveries or just to clear out their fulfillment center. With e-commerce, every B2B company is now adopting B2C e-commerce concepts in terms of making sure they have what their customers need. And we have a lot of expertise in that area to help customers with their B2B e-commerce transition.

LM: What about the Saturday delivery as it relates to the months leading up to Peak Season?

Gersenhorn: If you think about it, for the most part, the majority of vehicles in the majority of our buildings sit idle two-sevenths of the time so you lose that same amount in productivity. The idea is to grow the business in a way that will make Saturday like any other day, and we are really excited about that opportunity, because growth in parcel is significant in e-commerce, whether it is B2B or B2C as shipment sizes are getting smaller and you are seeing more and more e-commerce moving towards small package.

LM: Are you seeing that with UPS offerings like My Choice, for example?

Gershenhorn: Membership for My Choice is growing by 100,000-to-150,000 members every week, we are at over 35 million right now. UPS Access Points are continuing to get more and more packages.  

LM: It has been nearly two years since UPS acquired Coyote Logistics. How is it going, considering UPS had never been in the truckload brokerage space before?

Gershenhorn: We are growing that business high double-digits. We are growing by the truckload. The story for us with Coyote is that we are the “unbroker.” We are known as a broker, but we are now a hybrid, because we have a huge asset pool with our UPS small package, our UPS Freight, our UPS Freight Forwarding business, and our tractors and trailers. We are filling up those assets. When you see a UPS small package trailer going up the road right now you can have beverages in there or what you see typically moving via truckload, because we are filling up those assets with Coyote customers’ freight. We are disrupting the truckload market, and we are real excited about it. We are telling our customers that in the truckload world you have your asset carriers that get invited to the party in the beginning followed by the brokers after. We are getting invited up front now, because we can compete for portions of that business as an unbroker. In the brokerage business, you have to be able to differentiate yourself.  We are using a lot of the Coyote technology for our purchased transportation business at UPS and are getting synergies for things like asset utilization, procurement, and cross-selling.