Big brown machine

Nadia Khan , September 26th, 2009

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Dan Brutto, president of UPS International, explains why the company will continue to invest in the Middle East market.

United Parcel Service (UPS) has prided itself on turning the ‘brown’ brand into a household name across the world. The nickname ‘the big brown machine’ was tagged onto one of the world’s leading courier companies due to its preferred hue for the easily recognisable uniforms and vehicles associated with the brand.

Servicing more than 200 countries and regions worldwide, the company even plays on its colour co-ordination with its advertising ploys – regularly asking clients “What can Brown do for you?”

Keen to captivate the Middle East with its catchy image, UPS has been determinedly drumming up business despite financial times fraught with the recession.

This summer saw an announcement for the company’s infiltration plans in the region, with a Dubai-based joint venture aimed at developing the UPS express package, freight forwarding and contract logistics services across the Middle East, Turkey and parts of Central Asia.

Having acquired the small package operations of Turkey’s Unsped, UPS hopes the joint venture will provide it with a strong position for growth across the region. Unsped itself has shown an impressive record of annual growth over the past three years, with revenues having increased over 18%.

The endeavour looks likely to be a smooth transition - Unsped’s experienced employees are set to become part of the venture and its systems are already linked up to the company’s back-end processing due to its role as one of UPS’ service agents in the region.

Being geographically based in Dubai also brings with it many advantages. “We see this region growing as a transportation bridge and near-sourcing location for Europe, Russia and Asia. With this collaboration, we more effectively leverage our network and capability,” explains Daniel Brutto, president of UPS International. “UPS management is now closer to the 21 countries that belong to the new block in order to coordinate activities with service contractors, existing joint venture partners and operations.”

The company’s meticulous forward-planning has been hugely responsible for turning the courier into a leader in the sector – and Brutto himself has played no small role in this. In the heavy-weight role of UPS International president, Brutto is responsible for all international package, freight forwarding and logistics businesses, as well as US international package services. He is also part of the UPS management committee, which runs the day-to-day management of the global company.

Coming with 35 years of UPS experience, Brutto keenly recognises an opportunity for business growth when he sees one.

It is no wonder that the region has UPS eager about the future, with the company keen to seek new and better ways of imprinting its network firmly into the region.

“Since the Middle East has some of the largest and busiest ports in the world, we’re able to facilitate trade through the region with our ocean and air freight forwarding services, in addition to express package services,” says Brutto. “The region offers benefits to manufacturers with low-cost inputs and reduced logistics expenses if finished products are within the regional market, India or Africa.”

When it comes to developing the business, Brutto knows the score. He was president of Global Freight Forwarding for UPS prior to taking his current position, and part of the international acquisition and financial integration team in the 1990s, responsible for establishing operations in 35 countries across Europe and Asia. Not surprisingly for the experienced Brutto, conquering the Middle East is an exciting prospect, despite the current financial situation.

“Even in today’s economic environment, our share of the international market has increased due to the commitment of our people, the scope of a global network and broad product portfolio that facilitates global trade,” he emphasises. “Emerging economies are poised for increased domestic consumption, as well as production and assembly from near-sourcing that helps small and mid-sized companies enjoy growth closer to their markets. UPS is well positioned to work with trade flows both within and beyond regions.”

The joint venture is by no means the first of the company’s steps to develop the Middle Eastern market.

UPS first entered the Middle East way back in 1987 by setting up import operations in Bahrain. From this point, the company steadily grew, offering a service portfolio that combined local expertise through service contractors and joint ventures within countries. The initial service in Turkey involving Unsped was set up a year later in 1998. As Dubai became an increasingly important gateway, UPS used its geographical vantage point to link business regions and leverage its global network for more efficient sorting and bypass operations.

Last year, an additional provision was added to its express shipping services. UPS Expedited was introduced across seven countries in the Middle East, namely the United Arab Emirates, Saudi Arabia, Bahrain, Egypt, Kuwait, Oman and Qatar. The new service specifically targeted customers with less urgent shipments to major international destinations, in the courier’s attempt to continue reducing challenges to the free flow of trade in the region. UPS also announced expanded domestic express small package pickup and delivery services to cover 15 additional countries including the United Arab Emirates and Saudi Arabia.

With this solid presence in the Middle East already, UPS can now concentrate on consolidating its position in the region.

“The focus for our Middle East activity is to integrate existing capabilities and present a unified UPS face to get maximum benefit from the enterprise,” says Brutto. “Customers will more clearly see the breadth of UPS
services and our efficient network as a differentiator. The management team will further refine targets, growth rates and physical infrastructure needs.”

With all this talk of growth, you could be forgiven for wondering whether UPS had been completely oblivious to the recession affecting all businesses across the globe. Brutto admits this is not necessarily the case. The company’s second quarters financial analysis recently demonstrated a 16.7% revenue decline, chalked up to the general after-effects of the global recession. As other major companies, UPS has had to implement cost control measures, cleverly aimed at reducing the impact on the company overall.

“The benefit of a comprehensive global network lies in its flexibility, so that refinement isn’t necessarily pinpointed to a single initiative or targeted geography,” Brutto points out. “International block hours for our airline, for example, dropped almost 16% in the recently reported second quarter without impacting our service footprint – meaning reduced fuel consumption and cost savings. We’re ahead of our plan so far and anticipate we will realise between
US $1.2 and $1.3 billion for our cost control efforts across the enterprise this year.”

The company has also been committed to safeguarding jobs as much as possible. “Job reductions have largely come through organic attrition from retirement or departure with those positions not being replaced and tasks reassigned,” says Brutto. “Where we have reorganised operations, we have largely been able to place our employees in other UPS jobs or work out alternative arrangements.”

As a result of these carefully planned control measures, and the company’s optimistic stance to business growth, UPS confidently refers to itself as financially ‘the strongest company in the industry’, being AA rated by both Moody’s and Standard & Poor’s. “For many years UPS has consistently posted industry-leading margins. We continue to generate strong cash flow – some US$2.7 billion for the first six months of 2009, an increase of US$195 million over the same period last year,” says Brutto. “None of our competitors hold this distinction.”

Indeed when it comes to competitors, the company appears to be caught in controversies of a different kind, involving two of its major rivals - FedEx and TNT.

This summer witnessed UPS locking horns with FedEx, in an ongoing union’s legislation issue in the United States. The controversy revolved around the proposed Federal Aviation Administration reauthorisation bill, which places some of FedEx’s employees under the National Labour Relations Act, in line with UPS workers – making it easier for the former to unionise.

In a fierce lobbying battle, FedEx has criticised UPS for its support of the bill, accusing the company of ‘bailout’ on its website. Brutto is quick to react. “FedEx’s use of the term “bailout” is both untrue and misleading,” he argues. “In reality, the RLA amendment will correct a long-standing regulatory inconsistency and ensure that employees performing the same work are governed by the same labour law.”

He is keen to point out the lack of any “material difference” between the services UPS and FedEx offer their customers or the methods and equipment they employ.

“Both companies use large fleets of trucks and aircraft to transport shipments around the country and the world. Both companies utilise an integrated network of hubs where thousands of employees unload, sort and load millions of packages every day,” he asserts. “And ultimately, both companies use drivers in trucks – not pilots in aircraft - to deliver every single shipment.”

Whilst both courier companies await the outcome of the debate, other rumours have placed UPS in a buying out deal with another of its competitors, TNT. Last year, news reports hinted that UPS was plotting a billion-dollar bid for its Dutch rival in order to consolidate its European operations. Brutto, however, is not giving anything away.

“We monitor all competitors and evaluate opportunities to make strategic investments for growth,” he says generally. “Our acquisitions in Romania, Slovenia and Turkey, as well as our recently-established joint venture to service 21 countries in the Middle East and Central Asia, are examples of expanding our footprint and positioning to make sure we’re ready when global economic activity revives.”

As these issues look some way to being resolved, UPS continues to drive forward its ambitious growth plans – continuing to invest in its services. The company took delivery of the first of its 2007 order of twenty-seven 767-300Fs in July this year. “Another 27 of the freighters will join our fleet by 2012. Due to its versatility, reliability and safety, we believe the 767 will be instrumental to the global success of UPS for decades to come,” says Brutto. Having such a positive stance on business growth, coupled with its long-standing experience, UPS looks set to continue its run of success. With more than 34 years of UPS experience under his belt, Brutto shrugs off riding the recession and looks forward to the future.

“UPS has been resilient through other economic downturns in its 102-year history and has positioned itself for sustainable growth each time the economy strengthened,” he ends.