The rise of the “Quiet Giant”

"Plenty of people have seen United Parcel Service's brown trucks. Few realize that UPS is one of the biggest shipping companies in the country."
-- Forbes magazine, 1970

UPS FACED a crisis in the late 1940s and early 1950s. The company's traditional business model was increasingly out-of-sync with the rapidly changing retail business market. The crisis was so severe that the very future of the company was at stake. Yet not only did UPS survive the crisis--it dramatically shifted its business strategy and, during the following two decades, emerged as one of the rising giants of the shipping industry.

What was the source of the crisis, and how did UPS survive it?

In the years following the end of the Second World War, the dominance of big city department stores came to an abrupt end, as the U.S. population and shopping shifted to the suburbs. The suburban shopping mall--so ubiquitous today in American life--was a new and conspicuous symbol of the changing shopping habits of Americans during the postwar period of economic prosperity.

Historian Lizabeth Cohen, in her book A Consumer's Republic: The Politics of Mass Consumption in Postwar America, points out that in a two-decade period from 1939 to 1961, the suburban share of the total metropolitan retail trade leapt from 4 percent in 1939 to a commanding 60 percent by 1961. The malls were built with massive parking lots to accommodate a new generation of car-owning shoppers.

Suburban--as well as urban shoppers--increasing took their packages home with them, virtually eliminating the need for home deliveries by specialty delivery companies like UPS. Though UPS still emblazoned logos on drivers' caps with the slogan "The Delivery System for Stores of Quality" as late as 1961--a quaint reminder of how UPS established itself--the retail business had dramatically changed.

UPS founder and still-serving CEO Jim Casey saw the potential for different type of business market that the company could gobble up: "The vast field of distribution for wholesalers and manufacturers appears to be wide open for us."

This isn't to say that UPS didn't maintain profitable connections with many high-end department stores. But UPS's future lay in becoming a general freight company--a "common carrier" shipper in the industry lingo and a much broader business that connected manufacturers, wholesale distributors and customers.

WITHIN THIS market, UPS specialized in the delivery of small parcels--"parcel post"--packages weighing one pound or more. UPS had a certain expertise in this market already because of its years in the department store delivery business.

Parcel post became a battlefield in the 1950s and 1960s, between UPS and its competitors, including its biggest rival, the U.S. Post Office. The Post Office had begun a parcel postal service back in 1913 and had a virtual lock on the market. But in a blunder of historic proportions, it announced in 1952 that it would no longer accept parcels over 20 pounds. This ceded to UPS what eventually became a huge market.

In order to really capture this market, UPS needed to truly become a national company, with the right to do business and transport packages across state lines--but that meant dealing with the federal government's Interstate Commerce Commission (ICC) and various state agencies.

The freight industry, like many others, was much more regulated during the 1950s and 1960s than we can imagine today. UPS, not to mention plenty of right-wing ideologues, portray these years of business regulation as a long dark night of tyranny and persecution of business.

This corporate whining was exposed as a big lie by consumer advocate--and later independent presidential candidate--Ralph Nader in 1970 when his team of young lawyers, known as "Nader's Raiders," issued a scathing report about the ICC charging that the 11 commission members were "unqualified and weak" "political hacks" appointed to their positions as "political payoffs." The so-called regulators gave the freight companies pretty much what they wanted.

The way it worked was what Nader called "deferred bribes" from the freight companies. Out of 12 commissions who left the ICC between 1958 and 1970, 11 got jobs as lawyers directly or indirectly representing freight companies before the ICC. The so-called regulation of the freight industry was a racket, the worst type of "crony capitalism."

In 1953, UPS got common carrier franchises in Chicago and New York. It already had that status in Los Angeles, inherited from a merger long ago. "Also in 1953, in California, UPS received authorization to extend its reach into the wholesale trade in San Francisco and Oakland, and to connect its Los Angeles and San Francisco markets with wholesale service," according to business historians and journalists Mike Brewster and Frederick Dalzell. This was a huge boost to UPS's West Coast operations, especially California, which by 1962 had become the most populous state in the country.

When UPS celebrated its 25th anniversary of doing business in the New York City metropolitan area in July 1955, it coincided with the company's 750 millionth delivery in the New York area. The New York Times reported on the events--and picked up on a point that would be a trademark of UPS for the next two decades: "In keeping with the almost anonymous character of United Parcel Service, the identity of the specific milestone package will be unknown to the store, the customer and the company itself."

This "almost anonymous character" was a glimpse of the methodical, stealth-like way that UPS had built itself into the country's leading shipping country. It avoided media coverage, did little advertising and its top officers were little known, if at all, outside the company.

The federal government also aided UPS's development of UPS as a national company--and other interstate freight companies, too--with the construction of the massive interstate highway system. Begun during the presidential administration of Second World War hero Dwight D. Eisenhower, this vast network of freeways connected all parts of the continental U.S. The Federal Aid Highway Act of 1956 authorized the construction of the highway system, and the total cost of construction by 2012 has been estimated at more than $425 billion.

UPS couldn't have emerged into the giant of the shipping industry without this huge subsidy from the federal government. No consortium of private investors could have built the system.

As late as 1991, UPS remained critically dependent on the interstate highway system when it built its huge Chicago Area Consolidated Hub (the "CACH"), located 15 miles southwest of Chicago at a meeting point of major highways. The CACH has employed up to 8,000 people who load and unload trailers, and as many as 1.6 million packages pass through the facility, making it one of the important hubs in the UPS system.

AS THE 1950s transitioned into the 1960s, there were two important developments at UPS. James E. Casey, the founder of the company, retired as chief executive officer in 1962, though he would remain on the board of directors until his death in 1983 at the age of 95.

The 1960s also saw UPS emerge from fringes of the freight industry with an explosive growth in business and profitability. UPS doubled its revenues from 1964 to 1968, from $200 million to $400 million, and simultaneously double its profits to $5.5 million. "And there doesn't seem to be any prospect of a slowdown ahead," an enthusiastic Forbes magazine gushed.

By 1970, UPS did business in 31 states and had just gotten permission from the ICC to add nine more Midwestern states to its growing empire. Over the next decade, UPS completed its conquest of the 48 contiguous states, and then Alaska and Hawaii.

It was getting harder for UPS to operate with its usual stealth methods. In a 1970 profile of the company, Forbes dubbed UPS the "Quiet Giant" of the shipping industry--but with a top management pursuing an aggressive vision:

[UPS] officials believed only one parcel shipping company could exist in the United States, and it hoped that keeping a low profile would prevent anyone from copying its methods...

With uncommon shrewdness, UPS has scaled its operations to fit its basic market. [Railway Express Agency (REA)] and the truckers can have the big-ticket shipments. UPS won't take any package that weighs more than 50 pounds--its average package weighs 10 pounds and is about the size of a briefcase. This means every package can be sorted on a conveyor belt and easily carried by a single deliveryman. Its average charge is only about 80 cents.

The big losers in the package wars were the U.S. Post Office and REA, the freight company historically associated with the railroads. By 1969, while the Post Office continued to deliver 1 billion packages annually, UPS had reached half as many, and its share would grow in the near future. In effect, UPS had become the other post office. In 1968, UPS's revenue stood at $400 million, 55 percent greater than the largest freight company, Consolidated Freightways--while the same year, REA lost $40 million.

Thus, UPS made a successful shift during the 1950s and 1960s from being a relatively small and specialized delivery company to an emerging giant in the shipping industry. One era of the company's history closed, and another began. But that had an impact on the workers at UPS--as we'll see in the next installment of this series.