upsdude
Well-Known Member
I went to a buildings and facility workshop a long time ago to discuss this same issue. The biggest issue they look at is Return on investment, Cost, and tax impact. If we need to build a new pkg ctr to relieve congeston in other ctrs and at same time it will reduce to/fr time and also therefore improve sporh it seemed like a no brainer but it was rejected by corporate but when they explained it, it kind of made sense in this example.
(Keep in mind these numbers are off the cuff and an example).
Cost to build new pkg ctr to relieve other buildings - 20 Million dollars
Cost saving by reducing to/Fr 4 million/yr
Seems like a no brainer since we get our money back in 5 years then after that there is continual savings.
Here's some of why they said No.
If the 20 Million was invested UPS expects a decent interest rate in this example 10%. So by putting 20 Million into a building and not being invested they lose 2 Million a year in earnings on money (interest).
20 million cost gets depreciated over a long period of time (99 months).
So we get to have tax savings on 200,000 per year which at roughly at a corp tax of 38% is around 70K savings per year on taxes.
As far as the cost of 4 million/yr on hourly cost savings. The tax impact on that also at 38% is roughly 1.5 million in less taxes. So the cost to UPS for houly is 2.5 million (after tax effect).
If we add it all up.
If we don't do the new building.
4 million of hourly cost
less 38% corp tax effect netting 2.5 million yearly after tax cost.
If we do new building.
Spend 20 Million and have lost opportunity of 10% earnings or 2 million
less the savings on tax of 70K/yr leaving 1.93 million cost.
Now the difference is 2.5 million cost/yr if we don't build. 1.93 million if we build. Still a savings but now it's down to slighly more then 1/2 million a year or now a 40 year payback.
Then there's other costs. Additional feeder runs tofr new facility.
Additional fixed cost for buildings, (electricity, fuel, water,taxes). Plus additonal cost of computers, mgrs, supvs and other staff overhead.
In short, a huge amount of decision is made based on the corporate taxes imposed by the government. If the government lets companies depreciate investments in buildings in 1 year or 2 instead of over 99 months. You'd see a lot more buildings being built by a lot of companies, which would help to improve the economy.
This also is a reason why UPS has older pkg cars. If we spend 5000 on a pkg car to fixrepair it we get to deduct that money immediately against taxes. If we do that for 7 cars we get to deduct 35000 in taxes which saves us on taxes owed on the 38% tax rate which is about 13000, so the 35K in repairs cost us after taxes only 23K. If instead we buy 1 car at 35,000 we have to depreciate over 99 months. So that 35K in purchasing a car takes a long long time to depreciate.
Sorry to go on, and it is a little confusing. But was hoping this would help to explain some of the reasons for they way it's done.
However, if it's truly a safety issue, this should be fixed immediately.
I'm not trying to beat you up, but one ragged package car takes out a family and UPS spends 10-15 million in damages. Do the bean counters figure that in?