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UPS sets up access points for U.S. deliveries to cut costs

A UPS delivery truck is seen in New York City March 5, 2014.REUTERS/Mike Segar

By Ankit Ajmera and Abinaya Vijayaraghavan

(Reuters) - United Parcel Service Inc (UPS.N) has started allowing U.S. customers to collect packages from neighborhood stores or lockers to lower failed deliveries of online purchases and costs associated with them, ahead of the busy holiday shopping season.

Courier companies face higher delivery costs on online purchases by shoppers as per-package volume is lower than bulk deliveries to businesses.

Repeat deliveries to buyers not available to receive their parcels adds to the costs in terms of handling, fuel and labor.

"If we save one minute per driver, it results in a multi-million dollar savings," UPS spokesman Steve Gaut told Reuters, estimating global annual savings of about $15 million.

UPS also offers customers an option to reroute or reschedule deliveries for a $5 fee under its "UPS My Choice" service.

UPS said in July that it would invest $175 million to strengthen capacity to ensure timely deliveries during the holiday shopping season, which begins with Thanksgiving.

The company faced criticism from customers last year, when severe winter and heavy orders led to delayed shipments during the holiday season.

Morningstar analyst Keith Schoonmaker said access points in the United States were critical for courier companies "because (business-to-consumer) is increasing its portion of total parcel mix for not only UPS but also for" rival FedEx Corp (FDX.N).

UPS, the world's largest courier company, gets about 62 percent of its revenue from the U.S. market.

Worldwide e-commerce sales are estimated to reach $2 trillion in 2015 from about $1 trillion in 2012, according to Bigcommerce, which provides an e-commerce platform to businesses.

FedEx uses about 1,800 of its U.S. offices as pickup points, according to its website. The company set up lockers at 15 locations in Dallas and Memphis this year.

UPS said on Wednesday that nearly 300 outlets, including dry cleaners, convenience stores and pharmacies, in New York and Chicago would serve as access or pickup points. This includes nine unstaffed lockers in Chicago.

Online retailer Amazon.com Inc (AMZN.O) offers a similar service. It began setting up lockers in several U.S. cities in 2011, while Wal-Mart Stores Inc (WMT.N) started testing locker services at 10 stores in Washington, DC last year.

UPS said its 4,400 U.S. store franchises would also serve as pickup points from January. The company has more than 12,000 access points in Europe.

UPS said it expected to have 20,000 pickup points in Europe and the Americas by the end of 2015.

It will also offer its "UPS My Choice" service in 15 more countries in North America and Europe. More than 10 million U.S. consumers currently use the service.

UPS shares were up 1.3 percent at $97.68 in late afternoon trading on the New York Stock Exchange. Up to Tuesday's close, the stock had fallen 8.2 percent this year.

(Additional reporting by Rohit T.K. in Bangalore; Editing by Savio D'Souza and Kirti Pandey)