UPS is eyeing a driverless and electric future for its fleet as it focuses on e-commerce

The United Parcel Service Inc. (UPS) logo is displayed on a truck parked in New York.

Michael Nagle | Bloomberg | Getty Images

UPS announced Wednesday investments in electric trucks, the testing of self-driving vans and the construction of a new “super hub” as part of its efforts to capitalize on the growth of e-commerce.

UPS, which sees electric vehicles as a key part of its sustainability efforts, will purchase 10,000 electric vehicles from U.K.-based startup Arrival and take a minority stake in the company. The financial details were not disclosed.

The vehicles will be customized for UPS with a modular design that the company says will allow for parts to be standardized and reduce the cost of maintenance. UPS’ fleet currently has more than two dozen different model vehicles. The delivery vans will be deployed in North America and Europe.

“UPS continues to build an integrated fleet of electric vehicles, combined with innovative, large-scale fleet charging technology,” said Juan Perez, UPS chief information and engineering officer. “As mega-trends like population growth, urban migration, and e-commerce continue to accelerate, we recognize the need to work with partners around the world to solve both road congestion and pollution challenges for our customers and the communities we serve.”

Last year, UPS and Arrival partnered on a trial of 35 electric vehicles in London and Paris.

“UPS has been a strong strategic partner of Arrival’s, providing valuable insight into how electric delivery vans are used on the road and, importantly, how they can be completely optimized for drivers,” said Denis Sverdlov, Arrival chief executive.

The two companies also plan to collaborate on technology to operate the vehicles autonomously within UPS facilities.

Bernstein analyst J. David Vernon said a shift to electric should provide a long-term benefit.

“Electric is going to allow you to save on the cost of fuel and significantly lower the cost of maintenance,” said Vernon.

Earlier this month, Hyundai and Kia Motors announced a $110 million investment in Arrival, and the company will develop electric vehicles designed for delivery for the automakers.

Arrival’s top rival is U.S.-based Rivian, which has partnered with Amazon and Ford. The e-commerce giant has invested $700 million in Rivian, which has plans to provide Amazon with more than 100,000 electric delivery vans in 2021. Ford invested $500 million in Rivian, and the companies will partner to build new electric battery vehicles.

Meanwhile, UPS said Wednesday it is testing self-driving minivans with Alphabet subsidiary Waymo in the Phoenix area over the next six months.

In February, an autonomous minivan will transport packages from a UPS Store to a UPS sorting facility. A Waymo engineer will ride in the autonomous vehicle to monitor operations at least initially. If the test is successful, UPS said, it could expand the test to more stores and vehicles.

“UPS is exploring automated and autonomous technologies to enhance network operations,” said Scott Price, UPS chief strategy and transformation officer. “Getting packages to our sortation facility sooner and more frequently, while also creating an opportunity for later drop-offs for next-day service, can add enormous value for our customers.”

The test is trying to determine if autonomous delivery improves efficiency or customer service.

Rival FedEx is testing autonomous robots for delivery to homes and businesses. And UPS owns an undisclosed stake in self-driving truck startup TuSimple, which is also testing in Arizona.

In addition to these efforts, UPS is looking to add 7 million square feet of sorting space globally before the 2020 holiday season.

It will spend $1.4 billion in Pennsylvania to boost its capacity to sort and ship e-commerce packages in the Northeast through the creation of a super hub in Harrisburg, Pennsylvania. Automation upgrades will be made to three other facilities in the region to speed sorting and shipping of packages between Philadelphia, Pittsburgh, New York, Baltimore and Washington, D.C. All together the upgrades will help add more than 1,700 new jobs, UPS said.

Other facility expansions are also planned for this year.

As part of its three-year plan, announced in 2018, UPS is targeting $20 billion in capital expenditures.

FedEx has committed more than $17 billion to capex spending between 2018 and 2020, including an estimated $5.9 billion this fiscal year, according to its 2019 annual report. In 2018, the company also announced a nearly $3 billion investment to upgrade and modernize its two largest hubs, in Memphis and Indianapolis.

“If you think about the Northeast and the amount of population there, it makes a lot of sense. It will reduce the time in transit, and the efficiency will improve margins,” said Vernon. He said automation can allow the company to be “more dynamic and responsive to changes in volume and changes in demand.”

UPS reports earnings on Thursday before the bell.

The company’s stock has a market value of $99 billion, and shares have risen nearly 15% over the past 12 months. By contrast, Fedex shares, which are valued at $38.8 billion, have fallen nearly 15% over the same period.

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