UPS inks operational, financial alliance with Optoro to broaden presence in reverse logistics

UPS Inc. has entered into an operational alliance with Optoro Inc., a provider of IT-based reverse logistics services, and has invested an unspecified amount in Optoro as part of a new $30 million funding round for the Lanham, Md.-based company, the two firms said today.

The alliance, which combines UPS' physical distribution network with Optoro's niche in developing technology-driven returns programs, takes effect immediately. Its launch comes a little more than two weeks before Atlanta-based UPS, the nation's biggest transportation company, is expected to be deluged with an avalanche of post-holiday shipments being returned to retailers and manufacturers. The company projects it will handle 1.3 million returned packages on Jan. 5, the peak day for returns. For the first week of January, the busiest for returns, UPS expects to transport about 5.6 million returned items. Both projections are significantly higher than the respective final figures for 2015, UPS said.

Return volumes supporting holiday and year-round retail commerce have been climbing, due in part to the surge in online ordering. Because consumers can't touch a product or see it in person before buying it, they will frequently order multiples of the item to avoid the so-called buyer's remorse. Invariably, they return all but the one piece they've selected to keep. These multiple returns have strained supply chains, many of which were formed to handle just the forward move of a shipment.

During 2016, between 15 and 30 percent of all domestic e-commerce orders will be returned, according to a forecast earlier this month from CBRE Inc., a Los Angeles-based industrial real estate and logistics services concern. Given that CBRE expects 2016 U.S. online holiday sales to hit $95 billion, the value of returned items could fall between $14 and $29 billion, based on the its full-year estimates.

"As e-commerce grows, returns will become an increasingly glaring challenge for retailers," Alan Gershenhorn, UPS' chief commercial officer, said in a statement.

In partnering with Optoro, UPS may also be countering, albeit on a smaller scale, Memphis-based rival FedEx Corp.'s acquisition two years ago of Genco Supply Chain Solutions, a contract logistics provider with a strong reverse logistics business. UPS has a history of buying companies that it had initially partnered with. A UPS spokesman did not comment on the depth of any future relationship with Optoro.

Optoro's software is designed to determine the most cost-effective pathway for returned and excess inventories so retailers can recover at least a portion of the unused product's costs. It relies on online platforms like Amazon.com Inc. and eBay Inc. to sell returned and surplus goods. Optoro operates two of its own retail websites, called BLINQ.com and BULQ.com. It works with U.S. retailers and manufacturers.

Sophisticated analytics tools such as those operated by Optoro have fueled the practice of repositioning returned merchandise for a new forward move as manufacturers, retailers, and reverse logistics practitioners look to monetize returned goods that might otherwise be drastically marked down, or simply thrown away. While the redeployment process wouldn't be considered a profit center, it could play a key role in mitigating sizable losses bound to be incurred when using the traditional disposal methods.

For example, order management systems built into the IT ecosystem contain "distributed order management" (DOM) modules that determine when a return—the "eaches," "onesies," or "twosies" that, in aggregate, account for most of e-commerce—should stay within a retailer's network for resale, or if the resale's value is so low as not to justify the costs of shipping.

UPS made the investment through its Strategic Enterprise Fund, an internal venture capital group that focuses on opportunities in the high-tech and emerging-market spaces.