UPS is investing $1.4 billion on a new Pennsylvania 'super hub' and automated sorting facilities

Updated Wed, Jan 29, 2020, 2:06 PM 4 min read

On the eve of its fourth quarter earnings report, United Parcel Service Inc., (UPS) announced plans to automate facilities nationwide, purchase thousands of electric vehicles, and spend $1.4 billion on a new “super hub” in Harrisburg, Pennsylvania, and other automated sorting facilities in that state.

The investments will help UPS expand its capacity while meeting environmental sustainability goals the company outlined two years ago, according to UPS’s Chief Information and Engineering Officer Juan Perez.

“UPS recognizes the need for us to continue to bring to our consumers innovative solutions where we can make your life easier,” Perez said.

Brown going green with EV in 2020

UPS announced it purchased a minority stake in London-based Arrival Ltd, which makes electric vehicles. It has committed to buy 10,000 of them by the end of the year. “Their design is very modular. They have the ability to actually change and scale those vehicles and configure those vehicles based on the needs UPS will have,” Perez said.

UPS is buying 10,000 electric vehicles from London based Arrival Ltd. UPS purchased a minority stake in the company and intends to take delivery of the EV package cars by the end of this year.

He added UPS will meet its sustainability goal in 2020, with 25% of all new vehicles it buys running on alternative fuel or advanced technology. “I think it fits well for what we need as a company and will need in the future,” Perez said.

Perez would not disclose how much UPS invested in Arrival. Last year, Amazon (AMZN) invested $700 million in EV truck maker Rivian and placed an order for 100,000 EV trucks as it ramps up its own delivery service. Amazon CEO Jeff Bezos says those EV trucks will start hitting the road in 2021.

$1.4 billion to automate and build a new super hub

UPS plans to add 7 million square feet at its sorting centers globally as it upgrades existing centers and builds new ones. It’s spending $1.4 billion in Pennsylvania alone where it’s automating sorting facilities in Philadelphia, Lehigh Valley, and Carlisle.

UPS just broke ground on a new “super hub” in Harrisburg that will anchor its new Northeast regional hub. The new center will employ 1,700 people full time. Perez says it will allow UPS to increase its e-commerce footprint. “These buildings are highly automated and because they are positioned in places where we can get volume closer to destinations that need to get this volume delivered at a much faster pace,” he said.

It’s the kind of strategy analysts at Cowen Inc. say will help UPS capitalize on consumer demand. A recent note from Cowen Equity Research to investors says, “UPS continues to invest in the network to improve automation and create capacity to deal with increased volumes from growth in e-commerce.”

The Cowen note anticipates UPS Q4 earnings to reflect gains from these kinds of investments. “We expect margin expansion in the U.S. domestic segment since the US consumer is strong and the company’s investment in the network was designed to improve efficiency,” the note stated.

Delivering tech driven savings

Driving those gains in efficiency is UPS’s On-Road Integrated Optimization and Navigation system known as Orion. It recently upgraded the complex software, which recalculates delivery routes accounting for traffic conditions, pickup commitments and schedule changes on a real time basis. Orion allows UPS to reduce the number of miles it drives delivering packages.

UPS dispatches 60,000 drivers a day with between 130 and 140 stops each. Perez says the software upgrade speeds up deliveries and saves money. “Saving one mile per driver per day across all drivers in the U.S. in one year, UPS can extract $50 million of cost,” he said.”

Other announcements from UPS:

UPS is expanding weekend pickup and delivery with Sunday delivery added in 113 metro markets.
UPS Flight Forward, the company’s drone delivery service, is adding the University of California San Diego health system to its healthcare drone delivery program.
UPS Access Point locations will expand to more than 22,000 locations in the U.S. with the addition of the private company Package Express Centers. 92% of the U.S. population will now live within five miles of a UPS Access Point location where consumers can ship packages.

For Perez, who started as a UPS delivery driver 30 years ago, it all adds up to innovation. “The one thing that I think truly differentiates UPS from others is the fact that we truly put it to work,” he said.

Adam Shapiro is co-anchor of Yahoo Finance’s “On the Move.”