Investing and financing
Long-term assets and financing
For UPS, other than local delivery of cargo, the company also extends its operations to other countries in the world like Canada and Mexico. It also carries out off-shore deliveries to area like Alaska, Hawaii and Guam, Puerto Rico and U.S. Virgin Islands. This therefore calls for the company to invest in long-term assets and to seek for long-term financing too. With increasing trade activities, it means more demand for delivery services. This is the reason why this company needs to pump in more finance to invest in more units of transportation like lorries, vans and planes
Taking a look at the financial statements of UPS, property, plant and equipment and other long-term assets have been increasing over the years from 2005 to 2008 despite a small decrease in 2009. By 2009, total noncurrent assets stood at USD 22608 million. These massive investments later translate to increased net income from its various operational regions.
Other than diversifying its service production, UPS is investing in new technologies in order to give it a competitive edge against its competitors and improve services offered to its customers. Such new technologies include complete online tracking of shipment from its origin to destination, full province coverage for the whole of Canada, total document imaging system in order to access all customs documents instantly and temperature protection for those products that are sensitive to temperature.
In order to come up with such investments and improve operations by advancing technology, much more funds are required. These amounts are great and therefore long-term of mode financing is the best and most appropriate option. But with increasing profits, the company is able to finance itself.
Existence of risks
UPS faces various risks mostly due to the nature of their operation. These risks are also faced by other players in the industry. Some of these risks include loss and damage of the shipment. Such occurrences are not very common but they are bound to occur at any time. Despite this, the most important thing is to put up procedures to remedy such situations for example providing compensation to the aggrieved party. Other risks include changes in operating and industry conditions.
FedEx is currently having a many majority of its facilities and stations around the world, which makes it vulnerable to all kinds of risks. The company has hundreds of cargo and commercial airlines that are potential targets for bomb threats or terrorism attacks. Therefore the risk factor exhibits also in this company.
With increased operations, income is increasing for both companies i.e. USP and FedEx. This in the end increases the net worth of the companies. This also brings about positive cash inflows as seen in the cash and cash equivalents for USP which though decreased in 2008; it increased in 2009 at USD 1542 million. Capital expenditure is thus catered for sufficiently.
1. Product differentiation vs. low cost leadership
With increased completion from various players in the industry, a firm has to develop a competitive edge in order to survive otherwise one may end up being pushed out of business. Therefore firms have to go an extra mile to impress and thus maintain one’s customer base as well as attracting other new customers. UPS is an established household name which is well known and in order to uphold their status they have to perform above the rest of the players in the industry.
The company will thus have to set high standards. Business ethics and good corporate governance are important. Improving technology and customer service will go a long way in setting a company as a pace setter. USP has incorporated various services like pre-arrival clearance services at borders in order to speed up delivery times and reduce delays, coming up with one master document for a particular shipment, customs- bonded facilities have been set up in Montreal and Toronto, customs brokerage facilities. Such services encourage a good relationship between customers and the company which translates to higher earning for them.
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