When does UPS decide to build new facilities?

Discussion in 'UPS Discussions' started by supercool, Jan 19, 2008.

  1. supercool

    supercool Member

    I've always been curious about how UPS decides when to build new facilities. In the region I work, most of the facilities are not adequate for the volume we now get. One center offloaded a bunch of zip codes to my hub and another center. I drive by that center sometimes and it looks completely antiquated -- addon belts sticking outside the building, a limited number of bay doors, etc. They look like they have no room for expansion. At least in our hub we can do a bunch of weird stuff during peak to accommodate the volume. Another center bombards us with volume every day because they don't have the capacity to hub it out themselves. While most of the larger centers will send out their own hub loads (DENCO, SACCA, CCHIL, sending air to the gateway, etc), this place only sends out one CCHIL, and forces their air on us every day (while the other centers just send it straight to the airport). We'd run much more efficiently without having to handle about three trailers of air volume they can't send straight to the gateway (although during peak they somehow managed to do this).

    At what point does UPS decide, "gee, we're missing a lot of packages, burdening hubs, and unable to give the level of service we should be able to with these old buildings. We should build a new center!"

    There's another hub across town that's about 30 years old... it's ancient. A couple years ago they tried to improve it by buying extendos for the unload and outbounds, but they realized that they just can't cram them into their building, so they just gave them to us. Their yard is tiny, and they seem to be bursting at the seams. Luckily they only handle volume from out of state to the local area, but half the time my hub has to pick up a number of their loads because they just can't process it (we do in-state and out-of-state). Building a couple new centers would allow the hubs to run the volume they need adequately for another decade, I bet. They could consolidate two into one, and then build another one way up north with ample room for growth. For a company as big as UPS, I would think sinking $20 million into a new facility would be a big no-brainer. Instead, they just try to cram more into what they have, resulting in damages, missed service, and burdening other facilities in the system.
  2. rod

    rod retired and happy

    Hey they put what they said was a $20,000 addition on to my old center. Basically it's a set of rollers with a rod above it to hold a couple of 100 watt lights. It's all ouside with no walls or roof. This morning it was 20 degrees below zero. NICE!!!
  3. IWorkAsDirected

    IWorkAsDirected Outa browns on 04/30/09

    Sounds like our center!! I believe they build new facilities about 30 years after they figure out the old ones are costing them more than a new one would.:knockedout:
  4. Cementups

    Cementups Box Monkey

    Even when they build new facilities they don't build them to project growth. They need to think big picture
  5. scratch

    scratch Least Best Moderator Staff Member

    My Center got moved into a new Hub built in a high growth area about 10-12 years ago. We were out of spaces to spot Package Cars in no time, we use four PDUs plus an add-on Air Recovery dock. Roof leaks bad too for such a newer building.
  6. tieguy

    tieguy Banned

  7. HazMatMan

    HazMatMan New Member

    We definately need a bigger building, too many trucks/packages/safety issues.
  8. Believe our districts oldest hub is 44+ years old. Newest, approx. 2001 and already over design capacity, along with the other two hubs it was built to help relieve. Considering we are in the top ten for shipping volume in the nation, pretty sad, they did not even include us in the Fast Lanes initiative. Even though Fed-Ex keeps taking volume due to their far superior time in transit, They probably don't care since facilities are already over design capacity anyways. Notice I state design capacity because you can always increase capacity potential by adding more workers, just that once design capacity is exceeded productivity per each added worker decreases as the volume exceeds the design capacity. Plus several other things increase with volume such as damages, service failures, and injuries. Remember that one of utmost important things to Jim Casey was the well being of the employees too, oh how things change when companies go public.
  9. brownrodster

    brownrodster New Member

    HMM, Well we seem to handle peek volume OK at my center so I doubt we'll get a new building anytime soon.

    When the evening sort can't finish before preload starts. And we can't get trucks out of the building before 10 AM thats when we'll probably get a new building. Actually, even then we'ld probably just get a few sets of rollers outside the building.

    Or when we leave the building so late everyday they tell us "don't break route for NDA's" thats when we'll get a new set of rollers to solve the problem.

    I thought my building was bad but it sounds like other people have it worse.
  10. UPS Lifer

    UPS Lifer Well-Known Member

    In my 36 year history in the So Cal area (3 districts) I watched 7 or eight major hubs go in. There were a lot of small buildings that were consolidated into major hubs. UPS projects 10 years out. When they build a new facility, there are numerous things they look at, such as how the transportation dept (feeder) will be affected (or will affect the proposed building). Where are the major routes, Pick up volume and city growth...etc.

    I watched a couple of buildings meet the 10 year growth projections in 3 to 4 years. A couple of buildings had to go to 24 hour operations until additional hubs could be built!

    They did a great job in projecting growth for Ontario (Regional Air Hub). The initial building was built in 90-91 and they just finished adding a 4th phase which affected the hub. The last couple of expansions were all hub related. They now have 16 PDs for just the ground operation. The ground twilight operation is maxed at between 200-250K for the span. The building started with about 100 drivers and is as approx 300+ now and volume (in '91) of 75K ground and 25 K air now approx 250K premium and that does not include air freight and International! So the overall volume for one building is around 500K!

    Now - that leads me to believe that the money to expand will go to the areas that will provide the best opportunity for growth. Major hub feeds will tend to be looked at closer than smaller buildings which will be allowed to burst at seams to keep the major networks from bottlenecking. This is similar to what happens at major airports when there is a problem with weather. Other airports are affected (domino).

    To keep the overall network working affectively you keep the main arteries clear! UPS is always looking to get the biggest return on investment...it just makes sense.
  11. Coldworld

    Coldworld Taking it all back.....

    And people want to keep pounding into our heads that were one customer away from going bankrupt and that we have been flat on growth for the last 10 years....please, give me a break!
  12. Coldworld

    Coldworld Taking it all back.....

    There were still many damages, injuries, and the like before ups went public, why is this event so looked upon as the downfall of ups, this have been the same for many many years. Im not sure fedex has far surperior times, if they did ups would make additional changes to their network. If there were more customers that were switching to fedex ups would work things out, its not a big issue as of now.
  13. RockyRogue

    RockyRogue Agent of Change

    HAHAHA....you might want to think again, my friend. Look at business in the last twenty, certainly last ten, years. Look at Dominos Pizza. It was the largest pizza chain in the United States, firmly entrenched in every market. La-de-da....here comes a competitor called Papa Johns. Dominos took a royal beating. Another great example is CNN. In the early '90s, it was the largest, most watched cable-television network. Fox News launched in early 1996. Do you know what Ted Turner's reaction was to that? He growled at a reporter, "I'm going to smash Fox like a bug." Less than ten years later, Fox was the most watched cable television news channel.

    My point: sitting back on its laurels is the death of any corporation. That 'little guy' of today is the next success! Innovation rules the day. -Rocky
  14. Coldworld

    Coldworld Taking it all back.....

    you didnt understand what I was saying. Yes I agree with you on that issue but ups seems to not be proactive on things unless they know its going to hurt business. there are many examples of this. And in this kind of business, there is lots of competition, yes, but a startup company is not going to be able to come in and buy thousands of trucks, planes, build facilities, purchase land, conveyor equipment, trailers, tractors, the list goes on and on. Start-ups are much easier to do when they dont have so much to purchase, like an internet company.I think we have seen the limits of competition here in the us for small parcel, the big four and I dont have to name them. We also have lots of competition from overseas companies as well, but they almost all seem to be from a foreign post office, which ups has been actively trying to get a bigger piece of those markets. Im sure many of these national post offices of other countries are worried that us companies like fedex and ups are starting to take market share. One more idea to ponder, who let these companies, especially airborne and fedex to get as large as they are today. when these two were born ups was huge, why wasnt more done to either purchase them or slow their growth. Its like beating a dead horse but it needs to be said again...If ups wouldnt have stopped the air service in the early days there would have probably been no fedex or airborne.
  15. UPS Lifer

    UPS Lifer Well-Known Member

    In all fairness...a lot of the volume at Ontario is cannibalized from other areas.

    As far as the Ontario Airport goes...it is part of the LAX airport system. There is a "trade free" zone around the airport that extends out many miles. (I forget how many). What this means is that any company in that zone can hold inventory and not be taxed on it. So... huge companies such as BMW, warehouse and send out parts out of this location. There are still a lot of land available. There are feeder routes that have to pull to the next closest hub located 25 miles away because the ground hub is maxed out. There are 7 hub, air and international sorts running every day!
  16. Coldworld

    Coldworld Taking it all back.....

    Probably true lifer, just like what fedex ground is doing to the express side of their business.
  17. freeloader

    freeloader geek

    Haven't you guys figured it out yet? UPS will pinch pennies and cut corners any way they can. I have never understood why they don't improve the facilities either. Most are running beyond their designed capacity and the fixes are cheap building modifications: old rusty cut-out trailers and wooden "fruit stands". Not only are they cheap but they are unsafe. The buildings are eyesores to the public and apparently that doesn't concern UPS. Most buildings still have the old UPS logo that was changed what, 3 or 4 years ago?

    I know of a building that was destroyed by a hurricane and UPS built a replacement: buy vacant lot, cover it with gravel, bring in cheap MDC units and use 2 mobile homes as the center offices. That was 3 years ago, the setup remains the same today.

    I know of another building that has been in bad shape for a long time and UPS constantly bandaid-ed it. The city had to come in and declare the building condemned for UPS to decide to rebuild it.

    Finally, take a look at PAS. They are cramming PAS into facilities that are well beyond their designed capacity. They are spending millions on building modifications and putting the computer equipment in areas exposed to rain, heat, humidity, snow, etc. I've seen some PAS equipment up as high as 40-50 feet where it is extremely hot and dangerous for the employees to work.
  18. wornoutupser

    wornoutupser Well-Known Member

    Finally, take a look at PAS. They are cramming PAS into facilities that are well beyond their designed capacity. They are spending millions on building modifications and putting the computer equipment in areas exposed to rain, heat, humidity, snow, etc. I've seen some PAS equipment up as high as 40-50 feet where it is extremely hot and dangerous for the employees to work.

    Our building is preparing for PAS and it will fail here from the start.

    The single largest flaw is our belt/unload flow. Our belt is NOT WIDE ENOUGH TO HANDLE THE FLOW. IE laughed when I pointed this out and told me to stay out of their business. I guess the dumb truck driver knows more than IE.

    We also still have to use rollers in the feeders here. This is an enormous waste of time.
  19. beentheredonethat

    beentheredonethat 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 to\fr 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 fix\repair 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.
  20. upsdude

    upsdude Well-Known Member

    My building is over 20 years old and busting at the seams. Cars in the middle, cars loaded outside with those trailer looking things. The city will only allow the temporary stuff (trailer looking things) to be used for 90 days, should be fun in another month. After the PCM I spend another 20 minutes waiting to get out of the building, I’m not alone. Our building and property look like Sanford & Son. The center is in a high end business/Industrial Park and we look like Trailer Park trash. A friend of mine is in IE, he said it’s a company wide problem. Billions spent on tech goodies the last few years and very little on facilities.

    The building was designed as a “half building”, when you look at the front the “peak” is on one side and we own the property next door. The facility is dirty both inside and out, but hey, it matches the package cars!

    I really wish Scott Davis would announce a visit, we could use a little clean up.