United Parcel Service
United Parcel Service is the most substantial package delivery company in the world. It also provides transportation and logistics services. The company operates in a very competitive market with key rivals such as Federal Express and the United Postal Services. However, the company has managed to remain global in package delivery. The primary critical success factors for UPS are timely delivery and competitively and accurately priced services. The company delivers over 13 million packages on each business day. UPS has invested in technology which is pivotal to its continued success. The technology ensures that customers are provided with excellent services to meet their needs. The customers can receive information at low cost concerning the content of the packages. This has also contributed significantly to their success.
UPS has been performing very in comparison with its closest rivals in the industry. It has a 51% market share by revenue. This includes both ground package delivery and domestic air. FedEx has 26 percent followed by US Postal Service at 17%. UPS has spent a substantive amount of money to upgrade its infrastructure. For instance, between 1988 and 1999, the company spent approximately $1 billion annually to upgrade the infrastructures. They wanted to ensure that every delivery had an electronic proof and track packages precisely. Furthermore, they wanted to manage their shipments efficiently on an online platform. Some of the items acquired include bar codes on packages, computerized clipboards for drivers and electronic scanners. By 1999, the company could handle six times as many online requests in comparison with FedEx.
UPS made no difference for its ground and air operations. The company shared many of its operating facilities including a fleet of trucks and shipment materials, unlike FedEx. UPS has been able to optimize usage of its assets by integrating ground and air operations. As such, they can meet customer requirements on time. This was seemed reliable and less expensive since the packages that were marked for next day deliveries by air were transported by truck and made available on time for delivery. UPS was committed to sustaining the strong performance it had shown in the market. There was a need for sophisticated IT infrastructure and supply chain management. The decision by UPS to go IPS was instigated by the need for continued success and public acceptance.
UPS is committed to sustaining the strong performance that they had shown in the market. In this case, more finance and credibility was required to keeping the company running. There were emerging trends that the company also wanted to focus on. For instance, UPS believed that these emerging trends would help them redefine the package delivery and services in the market. The trends would present the company with opportunities for continued growth and success. The emerging trends included supply chain management, globalization, and e-commerce.
UPS operates in a highly competitive industry. It is committed to attract a large pool of customers and maintain corporate responsibility. Going public is considered as an achievement and UPS made the right decision to go public since this would enable it to expand its market share and corporate responsibility. The timing was accurate because of the emerging firms which provide similar services in the market such as FedEx and US Postal Service.
FedEx has been performing well as one of the UPS major competitors in the market. The firm operates 41,000 delivery vehicles and pickups. In addition, it operates over 634 aircrafts which have enhanced its express segment of the industry. FedEx established an overnight delivery scheme which is the essential operating unit of the firm. In the year 1998, the overnight delivery unit contributed 83% and 84% of operating income and total revenues respectively. The performance of FedEx will continue to improve over the years. Its increased performance will influence the performance of UPS since they will dominate the delivery sector. UPS and FedEx are the primary rivals in the industry. Any improvement realized in the performance of FedEx will influence the performance sustainability of UPS. As such, it is upon UPS to enhance its operations and improve its performance to maintain the top spot in the industry. FedEx and UPS use different financial management policies. FedEx has maintained UBB credit while UPS maintained AAA credit rating. The fleets of UPS are financed with operating cash flow, long-term capital leases, and public debt. In this way, the IPO would enable UPS to repurchase its stock and publicly traded stock. The publicly traded stocks have attractive tax exchange programs which can be used to acquire other stocks.
According to the 1997 and 1988 financial report, the total discounted cash flow valuation for the firm is $39,225.81 million with $ 32.31 as the price per share which is equal to the discounted abnormal earnings valuation. In this case, the valuation of UPS is derived from the valuation of its closest rival which is FedEx. In this regard, UPS market stock price would be $30.69 per share since FedEx is trading at a price-book value of 2.7 and a multiple of 19.8. The management of UPS believed that the firm was the “best of breed” in the market as such the price offering must utilize a premium that reflects UPS as the “best of breed” in the industry. Therefore, the offering price in IPO should reflect a premium which is above the competing firms in the industry.
The value earning ration for FedEx was 19.8 while for UPS was 20.79. On the other hand, the market to book ratio of UPS was 5.7 which was much higher than FedEx’s which stood at 2.7. This is an indication that the performance of UPS is much stronger than FedEx. However, the market to book ratio does not match the firms that are considered as the “best of breeds” such as Wal-Mart, Home Depot and Coca-cola which had PE ratios of 46.1, 50.9 and 39.3 respectively. Therefore, the position of UPS was below the best of breeds firms and the best way to ensure efficient competition was to go public. I think this was the best decision ever made by the company since it would ensure corporate stability and enable the firm to raise more finance to meet the “best of breeds” standards in the market.