UPS plans to spend up to $7 billion in 2018 on expanding its network capacity and automating facilities to handle growing shipping volumes, The Wall Street Journal reports.
The planned capital investments follow backlogs that choked UPS’ network during last year’s holiday shopping surge, which led to shipping delays and forced UPS to spend $125 million on leasing additional planes and trucks, cutting into the company’s Q4 profits.
The $7 billion in capital expenditures is far higher than the $5.2 billion the company invested in new technology, facilities, and capacity last year, and the $3 billion spent in 2016. A combination of the lowered corporate tax rate under the US’ new tax law and shipping demand rising faster than the company previously expected drove the aggressive investment strategy.
That rising demand caused the backlogs that hit UPS’ network last year during the week after Thanksgiving, when UPS’ delivery volumes soared 20% over the prior year, compared with the 9% rise the company had projected.
As part of the spending plans for this year, UPS will open or retrofit 18 ground delivery facilities in the US, including three new major hubs, the first ones added to its ground network in two decades. The new facilities will be strategically located to help service areas where UPS’ network was hit hardest by the surge in holiday deliveries in 2017. The company also announced that it will order 14 new 747 jumbo jets from Boeing for added capacity on top of the 14 it purchased from the aircraft manufacturer last September.
The increased expenditures will also be put toward accelerating automation deployments in UPS’ facilities. The company has been gradually automating more tasks in more of its facilities over the last several years. It has already automated sorting and distribution at a number of its busiest facilities — which the company said has improved labor productivity by 20% — and plans to fully automate all work at its 30 largest US hubs by 2020. However, these automation efforts haven’t led to large-scale workforce reductions — UPS still had to hire 95,000 seasonal workers last holiday season, the same as the previous year.
This illustrates that, despite increasing usage of automation and robotics solutions in warehouse settings, these solutions are simply not mature enough to replace warehouse workers en masse. In particular, today’s warehouse robotics units can’t physically handle the wide variety of package sizes and shapes that run through parcel warehouse facilities, limiting robots to sorting and transporting goods around facilities, Ted Dengel, managing director of operations technology at FedEx Ground, recently told BI Intelligence.
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