Transportation of packaged goods from one destination to another is a very common activity in our world today. Billion of goods ranging from small parcels to heavy machineries are being delivered physically or mechanically everyday.
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Companies in charge of such services use different modes of transport, for instance, air, road, rail, and sea. The commitments of these companies include prompt and efficient delivery of goods on top of reliable and lucrative services.
However, with the increased demand for delivery services coupled with the current global challenges, logistical networks have become very intricate (United Parcel Service 4).
There is no doubt that distribution business is a huge and integral part of the global economy. The distribution business has continuously grown in the last decade similar to business globalization.
This remarkable growth has not only led to massive volumes of transactions to be processed, but has also created new aspects in distribution and therefore increased problems associated with operations at the distribution points (Opidee, Ankit and Stephen 2).
United Parcel Service (UPS) is among the private companies managing transport and international supply chain services. The company manages goods and information in almost every country in the world and handles about 13.5 million packages daily.
The company’s current headquarter is in Atlanta, Georgia (Opidee, Ankit and Stephen 3). Besides its core business, UPS logistic business also includes global financial trading, logistics technology, mail innovation and ground deliveries, consultancy services, warehousing and supply chain management.
The company started to venture in logistics in the mid 90s by offering solutions and consulting in global supply chain management. The company’s logistic strategies are incorporated in its shipping style via containerized maritime shipping.
UPS airline is ranked number eleven in the world (Chakravorty, Alex and Joe 4). The current global business challenges have considerably transformed the formula for business success. Over the last twenty years, a lot of focus has been on the growth of service industry since they operate in a highly competitive environment.
In addition, the competition has changed from simple pricing to encompass a range of other factors, for instance, product and service quality, innovation, and flexibility of response to the needs of the clients.
Therefore, company top organs have to come up with strategies that are capable of withstanding the current global challenges (Hobohm 5).
The use of maritime shipping, train, trucks and air service by the company has helped to minimize cost, optimize use of space and increase reliability. UPS has also invested heavily in information communication technology (ICT).
The ICT enables the company to easily access significant information in the supply chain. In addition, the UPS tracking system enables the company’s clients to monitor the progress of their goods online (Chakravorty, Alex and Joe 5).
The objective of this study is to explore logistic problems and issues that affect United Parcel Service. Even though the company is among the top logistics companies in the world, there are a number of issues and challenges that it is experiencing under the current global.
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These include unstable fuel prices, lack of client confidence in delivery times and speed of package delivery, and overreliance on ground control by their pilots to decide on their move. However, the study will focus on two major issues: the company’s debt problem and obstacles in the Chinese market.
Companies (including UPS) have the tendency to borrow heavily to fund their projects. The company’s borrowing problem is attributed to high competition in the global logistics business.
This has forced UPS to invest heavily on the state of the art technologies through borrowed funds in order to gain competitive advantage in the industry. Borrowing is not bad.
However it can have serious repercussions, for instance, liquidation of the company. The sub-prime crisis of 2007/2008 is also attributed to bad debt. The company’s heavy borrowing to fund its project has caused fear in some quarters.
A number of investors fear that the company could sink in the near future. This is partly attributed to its deteriorating ratios since 2008 (debt to equity ratio and debt to capital ratio). Therefore, we will carry out a Z-Score analysis to determine whether the company will survive in the near future.
UPS Brief Histories
United Parcel Service (UPS) is a global leader in transport and logistic services. UPS was established in 1907 by Jim E. Casey in Seattle, Washington (Opidee, Ankit and Stephen 2). He started the business using a 100 dollar he had borrowed from a friend.
There were few delivery companies in America at the time some of which Jim Casey had worked for. During this period most of the company’s deliveries were done on foot and bicycles were only used for long distance delivery (Opidee, Ankit and Stephen 2).
Only a few motorcycles existed in those days and most merchandising companies used horses and wagons to transport their products (United Parcel Service 1). In spite of the competition from the already established entities, the company did very well because of its client-based policies.
The company policies at the time included prompt delivery, client courtesy, reliability and affordable rates. These policies have stayed with the company up to date and are summarized in the company slogan, “best services at affordable rates” (United Parcel Service 2).
It only took the company 6 years from its inception to launch parcel post system. This is the time it began to use consolidated delivery. Consolidated delivery involved transporting combined packages to particular areas using motorcycles.
The company major clients included the United States post office, and retail stores. Consolidated delivery has helped to keep the company’s rates down since the man power and the motorcycle could be used more efficiently (Chakravorty, Alex and Joe 4).
The Company acquired its first car in 1914 after Jim Casey agreed to merge with Evert McCabe. The company changed its name to Merchant Parcel Delivery to reflect changes in business focus (from messages to packages). The business grew very first because of its high quality and custom-made services.
By 1915, Merchant Parcel Delivery had already cemented a good reputation within and without the city (United Parcel Service 2). In1996, the company agreed to merge with Charlie Soderstrom.
The new partner brought more vehicles and know-how. By 1918, Merchant Parcel Delivery had already stamped its authority business-wise in Seattle, Washington (Opidee, Ankit and Stephen 2).
The company initially was known as the American Messenger Company which was later renamed Merchant Parcel Delivery.It was until 1919 when the company acquired its current name-United Parcel Service (UPS). During that year, the company made its first business expansion to California.
Therefore, the change in name also reflected changes in business focus from packages to include parcels (United Parcel Service 3). Three years later, United Parcel Service bought a company in Los Angeles, California. The California Company practiced common carrier service.
This service incorporated numerous elements and retail principles which were foreign to many private courier companies.
The distinct features of common carrier services include: automated pickup calls, supplementary delivery services, automatic return of packages and parcels not delivered, and restructured billing system (Chakravorty, Alex and Joe 4).
The acquisition of the Los Angeles Company enabled UPS to offer extensive services at a level almost equivalent to postal services. As a result, United Parcel Service joined the league of the few companies providing common carrier services in the United States at the time (Opidee, Ankit and Stephen 3).
In mid 1920s, United Parcel Service acquired a new technology that considerably affected its future. This was the conveyor belt system for managing huge packages.
The acquisition of this technology enabled the company to further expand its retail delivery services within and outside the two cities (Seattle and Los Angeles) (Opidee, Ankit and Stephen 2; Chakravorty, Alex and Joe 4).
From 1930 to 1952, the company extended its services to New York City, New Jersey and Newark. However, the company’s services were heavily affected by fuel and rubber shortage during the 2nd World War.
Most of their clients particularly retail stores abandoned delivery services and forced their clients to make their own delivery arrangements. This trend continued for a while even after the end of the war.
This forced the company to explore other opportunities while maintaining its core business (Opidee, Ankit and Stephen 3). In 1952, the company obtained common carrier rights to deliver packages to certain individuals and businesses. UPS expansion included states which had legal and other trade restrictions.
Unfortunately, the company achieved this through a series of exceptional legal encounter (United Parcel Service 4). UPS became the first private company in United States to provide delivery services using its own airlines.
This started as early as1929, slumped for some time due to the great depression, but later resumed in 1953. The airline service grew tremendously and by early 80s it was available in almost all states. The demand for air parcel delivery continued to rise even past 80s (Opidee, Ankit and Stephen 5).
State deregulation of the airline industry presented another opportunity for the company. However, deregulation also led to the desertion of some routes. In 1985, UPS air service was at the moment available in the whole U.S and Puerto Rico.
The company also entered into an agreement with other airline companies operating between U.S and Europe. The company was also licensed by the U.S aviation body to become an independent airline.
From a simple parcel and package company UPS transformed into a cargo and passenger airline company (United Parcel Service 4). United Parcel Service Airline Company was the fastest growing airline in the history of Federal Aviation Administration (FAA).
In less than one year, the airline company had complied and embraced all the mandatory airline technology and support system. In the present day, UPS airline is among the top airline companies in U.S.
UPS Airline Company has some of the most advanced information communication technologies in the world, for instance, Automated Screening, Planning and Scheduling System. This technology provides adequate information for planning, scheduling, and cargo handling.
The Automated Screening, Planning and Scheduling System which can be used to maximize flight schedules for over five years in advance, is very exclusive in the airline industry (Opidee, Ankit and Stephen 5).
The company’s first sign of global expansion was in 1975 when it started to offer services to the city of Toronto, Canada. Later on in early 80s, UPS entered the West European shipping market. By the early 90s, UPS was already operating in most European countries through shipping and air services.
At the moment, UPS has a network in all the countries in the world. With its global services, UPS can reach over three quarters of the world’s population (Chakravorty, Alex and Joe 5). The demand for superior technology increased in 1990s when the company’s regular customers reached over one million.
With the increasing number of customers, UPS had no other option but to embrace technology that is efficient, competitive and maintains high quality customer service. UPS technology ranges from handheld devices, to customized vehicles, state of the art computers, and information communication systems.
The company boasts of international electronic data transmission network that links all its subsidiaries (Chakravorty, Alex and Joe 5).
The company has invested billions of dollars to improve its communication system and network. These developments are aimed at enhancing efficiency and capacity of its customer service.
Currently, UPS has over half a million miles of communication lines and committed satellite that links more than 1500 subsidiaries all over the world. The company also has a functional website that allows its clients to monitor their packages.
The UPS online package tracking has surpassed the expectation of many (United Parcel Service 5). Even though the company has retained its core business of distributing goods and information, it has also ventured into other businesses.
UPS is currently among the global leaders in shipping and tracking service. As a result, the company has become a global facilitator of goods, information, and capital.
UPS has also become a world leader in distribution and logistics. UPS is a member of the New York Stock Exchange. The membership has enabled the company to make strategic acquisitions in the significant sectors globally (Opidee, Ankit and Stephen 5).
UPS Logistic issues and problems
As earlier mentioned, the company has been experiencing a number of issues/problems over the recent past. These issues/problems include unstable fuel prices, client confidence in delivery times and speed of package delivery, and overreliance on ground control by their pilots to decide on their moves.
The issue of client confidence in company’s delivery time is partly attributed to poor infrastructure in some countries. UPS is the first company to recommend money back guarantee to its clients. The company has also improved delivery times in most American cities.
It did this by changing rail schedules and altering hub-and-spoke interstate trucking network. Other improvements include changing packaging locations and sorting time (Chakravorty, Alex and Joe 4).
The problems of package delivery speed and delivery time are almost synonymous except that the latter is only concerned with predetermined schedules. UPS introduced Delivery Information Acquisition Device to enable their employees report delivered packages in time.
This device scans barcodes and capture signatures on packages and this data can be uploaded to the company’s system through mobile phones. In addition, the company is basing the package flow system on smart labels which are also bar-coded (Opidee, Ankit and Stephen 7).
The problem of pilot overdependence on ground control to decide on their movements should be addressed by the company through the installation of the Automated Dependent Surveillance –Broadcast (ADS-B) in the aircraft cockpit.
Automated Dependent Surveillance –Broadcast transmits all the vital information (speed, GPRS coordinates, altitude, and direction) to all planes and therefore plays a significant role in controlling air traffic.
ADS-B helps pilots to be aware of the activities of other planes and therefore can make individual informed decisions to reduce time wastage and fuel usage. This technology is particularly useful during bad weathers where air traffic accidents are common (Opidee, Ankit and Stephen 8).
The problem of unstable fuel prices not only affects the global logistics industry but the entire economic and non-economic sectors in the world. Logistic experts argue that the installation of new software systems will help to improve on the efficiency of fuel usage.
The new software systems are able to create reloading labels for packages to minimize the time spend in package handling. In addition, the new geographical information system software will be able to help transport managers to map out routes and can run simultaneously with the existing back-end systems.
Installation of such software system will minimize the mileage of the United Parcel Service’s delivery fleet and as a result save the company over ten million gallons of fuel (Chakravorty, Alex and Joe 5).
However, the focus of our study will be on the company’s debt level and whether it will be able to survive in the near future. The study will also explore the company’s challenges in the Chinese market and how to overcome these challenges.
Generally, borrowing is not bad since it helps the business to grow faster. Even the founding fathers of UPS Company (Jim E. Casey) borrowed 100 bucks from his friend to start the delivery business. On the other hand, excess debt is not healthy for the company.
UPS has borrowed heavily over the recent past to improve its logistic services. In June 2012, the total amount of the company’s debt was estimated to be over13. 2 billion dollars (Y Charts 1). The company’s debt ratios (debt to equity and debt to capital) have deteriorated from 2008 to date.
The UPS borrowing trend was heavily affected by the global financial meltdown and stiff competition in the global logistics industry (United Parcel Service 2).
China’s logistic obstacles
China is among the fastest growing economies in the world. The country became a member of World Trade Organization (WTO) in 2001.Due to its vast market potential and cheap labor, major global logistic companies and multinational corporations have all moved to China (Luo 6).
However, logistics still remain a thorny issue in China. There is still a colossal gap between logistic service in China and Western countries. In addition, Chinese logistics are still fragmented. The country has numerous small logistic companies with less than 3 percent share of the Chinese market.
These companies can only offer basic services, for instance haulage and storage and are not able to provide value-added service such as stock control and information communication technology. Since joining the WTO, almost all global logistic giants have come to establish themselves in China’s logistic market.
They pose a big challenge for the local logistic companies which are still at the infancy stage. Nonetheless, these companies are also experiencing numerous challenges in the Chinese market (Luo 7).
Chinese government has invested heavily in the infrastructure over the recent past. They have constructed superhighways, improved internet connectivity, upgraded railroads and airports.
On the other hand, the standard of Chinese infrastructure cannot be compared with advanced economies such as U.S, Japan and most of the European states. The country still lags behind in a number of aspects, for instance inadequate transport system and old-fashioned warehousing.
As a result, UPS has always found it very hard to apply modelled approaches to supply chain management in China. In addition, the country’s logistic system is not efficient (Luo 13). The Chinese government is still investing heavily to improve its logistics and transport infrastructure.
The government vision 2050 plan has a project named “setting up state of the art logistic service models and sample companies”. The objective of this project is to establish thirty state of the art logistics and distribution centres, at the same time cultivating and developing countrywide massive logistic enterprises (Luo 14).
Since all major global logistic companies have gained access into the Chinese market, competition has become extremely high. Increased competition has also increased consumer expectation in logistic services than ever before (Luo 16). UPS is facing incredible opportunities in the Chinese market but also strong challenges.
Multinational corporations have established their own distribution system and in-house warehouses. The need for efficient and high quality logistics services has also increased among companies that can not afford such establishments.
According to a survey conducted in 1997, the most critical logistic barriers that are facing global logistic companies like UPS in China include government protectionist policies, high inventory level, longer delivery time, high logistic costs, dwindling flexibility, and consumer dissatisfaction (Luo 18).
Methodology is the process of instructing the ways to do the research. It is, therefore, convenient for conducting the research and for analyzing the research questions.
The process of methodology insists that much care should be given to the kinds and nature of procedures to be adhered to in accomplishing a given set of procedures or an objective. This section contains the research design, data collection technique and data analysis method to be used.
The research methods used “both primary and secondary” are described in detail, and selection and use of these methods are justified. Data collection techniques, as well as sample selection and data analysis are discussed.
In addition, pertinent issues and considerations (including limitations) relating to this specific research are presented and discussed. The research methodology is set out clearly in this chapter so that the same approach can be adopted by other researchers in the future.
For this part, choosing a philosophy of research design is the choice between the positivist and the social constructionist (Wood and Christine 56).
The positivist view shows that social worlds exist externally, and its properties are supposed to be measured objectively, rather than being inferred subjectively through feelings, intuition, or reflection. The basic beliefs for positivist view are that the observer is independent, and science is free of value.
The researchers should always concentrate on facts, look for causality and basic laws, reduce the phenomenon to the simplest elements, and form hypotheses and test them (Wood and Christine 58).
Preferred methods for positivism consist of making concepts operational and taking large samples. The view of the social constructionists is that reality is a one-sided phenomenon and can be constructed socially in order to gain a new significance to the people.
The researchers should concentrate on meaning, look for understanding of what really happened and develop ideas with regard to the data.
Preferred methods for the social constructionists include using different approaches to establish different views of phenomenon and small samples evaluated in depth or over time (Wood and Christine 59). In our case, the study will use the philosophy of the social constructionists to carrying out the research.
Because it tends to produce qualitative data, and the data are subjective since the gathering process would also be subjective due to the involvement of the researcher (Wood and Christine 59).
The study will mainly rely on secondary data. They include a wide range of materials ranging from company reports to financial statements. The issues in China are explored through empirical research. Interpretation and qualitative research techniques are used.
Five In-depth interviews were carried out with two company logistic officers, one cargo-claim lawyer, and two logistic consultants based in China. These respondents possess first hand knowledge and experience on China’s logistics. The study used a semi-structured questionnaire with a set of open-ended questions.
The questions were designed expertly to verify information already available in different literatures. Even though the sample size was very small, this study provides a foundation for larger quantitative studies.
Each interview lasted approximately 45 minutes and the respondents were encouraged to talk freely through confidentiality guarantee. In general, there was an outstanding willingness of the respondents to discuss logistical challenges that the company was experiencing in China and possible solutions.
Data Analysis Methods
The data collected will be analyzed using computer software to determine the Z-Score analysis. Interpretation and qualitative technique were also used to analyze the situation in China. Most investors normally determine whether the company is on the brink of collapse through the analysis of numerous financial ratios.
These ratios include liquidity ratios, profitability ratios, and debt level ratios among others. The problem is that each ratio is exceptional and paints a different picture of the company. In some occasions they tend to challenge each other.
Therefore, investors who depend too much on these individual ratios may find it very puzzling and hard to know whether the company is going down (Investopedia1). In an effort to resolve this problem, an economic professor by the name Edward Altman came up with a new formula in the early 60s.
The new formula was referred to as Z-score. Instead of probing for a superior ratio, professor Altman created a model that takes into account all the financial ratios in a unitary score. This formula turned out to be one of the best tools for assessing corporate financial health. The Z-score is a product of performance ratios.
These ratios include: working capital over total asset ratio (WC/TA), retained earnings over total assets ratio (RE/TA), earnings before interest and tax over total assets ratio (EBIT/TA), the market value of equity over total liabilities ratio (MVE/TL), and sales over total assets ratio (S/TA) (Investopedia1).
The formula for Z-score is given below.
Z-score = 1.2A + 1.4 B + 3.3C +0.6 D + 1.0 E
Where: A=WC/TA; B=RE/TA; C=EBIT/TA; D=MVE/TL; E=S/TA.
According to this formula, lower scores mean that the company is in a bad financial position. Breaking down the constituent ratios provides a deep understanding of their importance. Working capital to total asset ratio is an excellent test for company misery.
A company with negative working capital is very unlikely to meet its short-term objectives since they have inadequate liquidity in form of current assets. On the other hand, companies with positive working capital are able to meet their short term objectives very easily (Investopedia1).
Retained earning to total asset ratio measures the company’s level of leverage. Companies with lower retained earnings to asset ratio are likely to funding their projects using borrowings instead of retained earnings.
Earnings before interest rates and tax to total asset ratio reflects the company’s capability to extract some earnings from its assets before paying tax and interests.
The market value of equity to total liability ratio reflects the extent at which the share value can depreciate before the company becomes insolvent or unable to pay its dues. The ratio adds more significance to the formula.
In other words, this ratio shows public confidence in the company’s financial position. Lastly, sales to total asset ratio reflects how a company can manage competition and how efficient it utilizes its assets to create sales (Investopedia1).
Limitation of data collection methods
There have been a lot of concerns on additional budgetary expenses for collection of the data, regardless of whether the gathered data is really genuine or not and whether there may be an explicit conclusion when interpreting and analyzing the data. In addition, some of the vital information was inaccessible.
Particularly information deemed confidential and unsafe in the hands of competitors. This posed a great challenge to the research as the researcher had to strain to get vital information.
Even though the respondents provided a rich source of qualitative data, the small amount of the sample used means that the data may not paint a complete picture. Nonetheless, information provided was carefully analyzed to see whether they are in tandem with other experiential studies.
Furthermore, Z-Score test has a number of weaknesses and therefore should be handled cautiously. For example, the Z – score test is vulnerable to wrong accounting figures. In some instances managers may be tempted to give false financial results.
For that reason, Z-score is as precise as the data that is being used during the calculation. The Z-score can also become irrelevant in new firms that have modest earnings or have not made any profit. In such case, the score may not reflect the true picture of the company.
Z-score also does not tackle the subject of cash flow directly. It only brings it up through net working capital to asset ratio. Lastly, the score can change within a short period if company on one occasion experiences write offs. In such case, Z-score would give a misleading result (Investopedia 2).
Validity and reliability
The validity of the data represents the data integrity and it connotes that the data is accurate and much consistent. Validity has been explained as a descriptive evaluation of the association between actions and interpretations and empirical evidence deduced from the data.
More precaution was taken especially when a comparison was made between different sets of data. Reliability of the data is the outcome of a series of actions which commences with the proper explanation of the issues to be resolved.
This may push on to a clear recognition of the yardsticks concerned. It contains the target samples to be chosen, the proper sampling strategy and the sampling methods to be employed. All of these are well covered in the study.
Findings, Data Analysis and Interpretation
Analysis of the borrowing problem
As stated earlier, UPS has a tendency of borrowing heavily to fund its supply chain and logistic projects. Therefore, based on its long term trend of borrowing which has caused jitter in some quarters, the study carried out a Z-score analysis to establish the likelihood of the company going under in the near future.
The Z – score equation is given below.
Z-score = 1.2A + 1.4 B + 3.3C +0.6 D + 1.0 E
Where: A=WC/TA; B=RE/TA; C=EBIT/TA; D=MVE/TL; E=S/TA.
|2011||2012 (Second Quarter)|
|Earnings Before Interest and tax||3800||5330|
|Market Value of Equity||57030||66100|
|Book Value of Total Liabilities||24187||24380|
Z-Score zones of discrimination
When Z is greater than 2.99 then the company is in a safe position (healthy financially). When Z is greater than 1.88 but less than 2.99 then it is in a gray zone
When Z is less than 1.88 then the company is on the brink of collapse or insolvency
N/B: The score is not applicable for new companies that have not made any profit or experiencing write offs.
Using the Z-score equation, 2010 and 2011 Z-Scores are computed as follows:
2011: 1.2 (0.096) + 1.4 (0.397) + 3.3 (0.12) + 0.999 (1.4209) = 3.910
2012 (second quarter): 1.2 (0.198) + 1.4 (0.412) +3.3 (0.163) +0.6 (2.72) + 0.999 (1.475) = 4.357
From the results it is very clear that United Parcel Service (UPS) will still be in a very safe position in the future. In both cases it scores more than 2.99 which mean the company is healthy financially.
This gets rid of the fear that the company is in unstable position due to heavy borrowing to finance some of its logistic projects. Even though the company’s debts are increasing, the Z-score show it is bolstering even further into the safe zone and therefore minimizing the likelihood of going under.
The score moves up from 3.910 to 4.357. A large proportion of this positive trend is driven by its earnings before interest and tax, sales, and general improvement in operating margins, network effectiveness, and cost effectiveness.
The company’s increased earnings mean that it is still in a better position to continue borrowing. Therefore, UPS use of borrowed funds is not a weakness but a necessary a step to strengthen its competitive advantage in the global logistics industry.
Analysis of Chinese Obstacles
Generally, there was an outstanding willingness of the respondents to discuss logistical challenges that the company was experiencing in China and possible solutions.
The respondents identified a number of logistical obstacles that the company was experiencing in china. These obstacles were closely linked to the legal environment and WTO policies.
The study classified the responses into the following three main areas during the analysis: insufficient logistical facilities and infrastructure, customs procedures and clearing time, and cargo tracking and telecommunication infrastructure.
After two decades of lobbying and negotiation, China finally became a member of the World Trade Organization. In order to gain WTO membership, a country has to meet certain criteria. The criteria encompass logistics and freight services.
However, the study revealed that China’s logistic service is still inefficient. All the respondents concurred that the country still lacks a world class logistics service despite of its rapid economic growth and compliance with WTO standards. In addition, the logistics business is still dominated by state organizations.
Global logistic companies are heavily regulated in China. To operate in China, multinational companies have to be licensed by the ministry of foreign trade and economic cooperation.
The licensing procedure is quite cumbersome. Customs procedures in China are also excessively and complex, thus a major logistical obstacle. Most cargo owners and companies prefer to bribe customs officials to speed up customs clearing process.
Telecommunication facilities and cargo tracking system are very important in the logistics business. First, they provide first and efficient means of communication between the company and its clients along the value/supply chain.
Second, the tracking system enables the company and clients to monitor the progress of the consignment on transit. However, telecommunication facilities and cargo tracking system are still wanting in China.
Conclusion and recommendation
United Parcel Service is experiencing a number of issues and challenges including unstable fuel prices, client confidence in delivery times and speed of package delivery, and overreliance on ground control by their pilots to decide on their moves among others.
However, our study focused on the debt issue and obstacles in Chinese market. The study focused on China because it is among the fastest growing economies with massive opportunities for the company. Furthermore, there were fears that the company could go under given its deteriorating debt trend.
However, the study established that the company was very much safe despite of its borrowing trend. The company’s increased earnings mean that it is still in a better position to continue borrowing.
Therefore, UPS use of borrowed funds is not a weakness but a necessary a step to strengthen its competitive advantage in the global logistics industry. UPS can take advantage of the free trade zones created by the Chinese government to minimize regulatory obstacles. These zones are generally situated in sea ports.
Currently, there are about 15 free trade zones that have been approved by the Chinese government. The free trade zones were created primarily to enhance the flexibility of logistical environment. The free trade zones also enjoy state of the art computer system and electronic data interconnectivity.
Goods moving in and out of these zones are not licensed or constrained. Free trade zones also enjoy modern warehousing facilities and logistical facilities. In addition, UPS can enter into an agreement with the Chinese government to gain competitive advantage over other global logistic companies operating in China.
Such agreements will help to minimize bureaucratic custom procedures and licensing. Besides investing massively in technology, the company should also provide the Chinese government with strategic advice to help them come up with the most efficient supply chain using the best technological system available.
The company should introduce a hub and spoke system in China to enhance local distribution. UPS can achieve this by identifying main, air, rail and shipping hub for efficiency. Lastly, fragmentation should be combined with consolidation to achieve a high level of control on logistic chain.
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