Ups: Case Analysis

Current Situation

The overall performance of United Parcel Service (UPS) during the past year was good. The company's ROI for the last five year is 14.27 while the industry average is only 12.70. UPS is the market share leader in the express delivery market with a 53% share of the market, and 50% in the ground shipping industry (Lazich, 2007). Based on its Net Profit Margin, Return on Assets, and Earnings per Share the company's profitability is strong. Overall, UPS performed well in 2006.

UPS's current mission is a clear and succinct representation of their purpose (See Appendix A). Their businesses include ground package delivery, overnight package delivery, freight forwarding, logistics, postal and business services. Therefore, its purpose is to "enable global commerce" (www.ups.com, 2007).

According the company website, their strategy is to create the future through "One Company. One Vision. One Brand." It plans to expand its Distribution and Supply Chain Solutions to better coordinate the world of business. UPS intends to use the right technology to establish new services, improve operations and networks, and recruit personnel that will carry out the company's mission. There will be a continual effort to learn about its customers, anticipate and exceed their needs. UPS is going to strive for innovation to obtain sustainable growth. The company is using merger/acquisition strategies and also competing in foreign markets to improve in its international businesses. For example, UPS is focusing on expanding in the Chinese and European markets. The company's policies are stated in the UPS Code of Business Conduct. Overall, the company's mission, objectives, strategies, and policies are consistent with each other and reflect its international operations.

Corporate Governance

The current Board of Directors for UPS consists of 10 members all of whom have international experience including, Chairman and CEO, Michael Eskew. Only three members of the Board of Directors have either current or past ties to UPS, all other members are independent from the company. Company policy states that all members of the board are required to own shares of stock, so their decisions can better reflect the viewpoint of shareholders. Despite this policy, none hold a significant amount of shares individually.

The top management at UPS includes the CEO, CFO, president, and senior vice presidents. All of which have strong backgrounds in terms of experiences in their related fields such as law, worldwide sales, marketing, and communications. Only four people in top management have international experience. All of the current managers have been in their positions over three years and all have been internally promoted to their current positions. Executives are very involved in the strategic management process and the key person is senior vice president Bob Stoffel, who is in charge of the company's strategy. Top management is sufficiently skilled to cope with probable upcoming challenges because of their collective experiences in their various fields.

Opportunities

Expanding Chinese Market

UPS has been increasingly focusing on the Chinese market, one of the key growth markets in Asia. China has continued to dominate the Asian region in terms of activity and growth, with an estimated average growth of 30% over the past five years in the express industry. The Chinese air express market is expected to grow at about 34%. In August 2007, the company started the construction of a new air hub in Shanghai. The International Air Hub is scheduled to open next year and will link all of China via Shanghai to UPS's international network with direct service to the Americas, Europe and Asia. Over the past five years, UPS has invested about $600 million in China, including a successful transition to become the first wholly owned foreign express carrier in the world. The company has well positioned itself to benefit from the growing Chinese market.

Growth in European market

The express and delivery markets across the new European Union members in the Central and Eastern Europe are poised for double-digit growth rates over the next five years. UPS has strong presence in Europe and is further expanding its facilities across this region. For instance, UPS opened a European air hub in 2006, located at the Cologne/Bonn Airport, and has the capacity to sort 110,000 packages per hour. Also in October 2006, the company reached an agreement with Poste Italiane to carry the Italian postal service's international express shipments and started its operations in November 2006 for the 14,000 post offices. Poste Italiane operates across the country. In addition, UPS also plans to utilize the Poste Italiane network for its own pickup and final delivery in certain extended areas of Italy. It could leverage its existing reach to benefit from the growth of the express and delivery markets in Central and Southern Europe.

Online shopping

According to the US Commerce Department, online shopping rose by 20% in 2006, extending a seven-year trend of double-digit growth. The US online retail sales are predicted to reach $130 billion by 2006, up from $34 billion in 2001. By 2008, US online retail sales are forecasted to reach $271 billion. UPS is a leading facilitator of global e-commerce. The company provides a portfolio of solutions that streamline the customer's shipment processing and integrate transportation information into the retailer's business applications. With the expected growth rate of online shopping, the deliveries of goods are expected to increase substantially, which would boost the revenues of the company.

Threats

Volatile oil prices

Prices in the international oil markets recorded an upward trend in 2006. The price per barrel of Brent Crude reached a record level of $78 in August 2006. Although the prices returned to lower levels over the remainder of the year, the average in 2006 was approximately 20% above the previous year's level. Higher transportation costs as a result of increased oil prices also had a substantial impact on materials expense of the company in 2006.

Economic Downturn

GDP growth in the US is expected to slowdown in 2007. More importantly, the US has seen 17 successive interest rate hikes over the past few years leading to the current high of 5.25%. The freight forwarding and logistics businesses are tied to the performance of the economy in which the company operates. Healthy economic