When does UPS decide to build new facilities?

[upsdude]

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?

 

[tieguy]

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!

Cold I don't think the intent behind that message is to cry poor. Many of the old school managers myself included still keep pictures of the old Roadway parcel company trucks rusting in the junk yards to remind us of the dangers of complacency. When we start believing and operating like we believe we have gotten too big to worry about losing business is when that threat becomes real.We talked about constructive dissatisfaction on another thread in this case constructive paranoia does not hurt.

 

[upsdude]

Cold I don't think the intent behind that message is to cry poor. Many of the old school managers myself included still keep pictures of the old Roadway parcel company trucks rusting in the junk yards to remind us of the dangers of complacency. When we start believing and operating like we believe we have gotten too big to worry about losing business is when that threat becomes real.We talked about constructive dissatisfaction on another thread in this case constructive paranoia does not hurt.

I don’t disagree with what you’re saying. Sure, we need to try and get every package we can, its just good business. I do agree with Cold however, the company needs to stop the poor mouth routine. A driver that goes out slam full everyday isn’t going to buy the “We’re loosing volume” story. I ran into a division manager a few weeks ago that was formerly over our area. I’d go to hell and back for this guy, he was a blast to work for and is well respected by other management and most of us hourly folks. He summed it up pretty well. Yes, our district has lost some volume, but most of it was as a result of shippers consolidating their distribution centers. UPS still has the volume. But, he also stressed we need to keep digging for more and I understand that. Businesses are supposed to grow.

UPS needs to find a better way to convey the “Grow the Business” message.

Hum, maybe this fits with my "Happy" employees post in another thread.

 

[LKLND3380]

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.

I think only after fire, tornado, earthquake, or the city condems the building... Then they will build a new building or move to an older building...

 

[tieguy]

I don’t disagree with what you’re saying. Sure, we need to try and get every package we can, its just good business. I do agree with Cold however, the company needs to stop the poor mouth routine. A driver that goes out slam full everyday isn’t going to buy the “We’re loosing volume” story.

That is a problem. We do such a good job of fully utilizing our assets;buildings and package cars; that perhaps our drivers do not realize the battles we fight. I saw my districts volume growth plans. Our districts plan is to grow new business by 30 million for a net gain of 12 million dollars of business. The plan accounts for an expected loss of 18 million in business. You have to wonder how long you can continue to grow the business at such a rate just to net 36%. If we do nothing we lose 18 million dollars of business in my district alone. The competition is real. The possibility of losing business is very real. We have to be carefull that we are not so transfixed by the feast in front of us that we do not see the food supply behind it dwindling.

Don't hate the player hate the game. We are in a very competitive time period. We have to make sure that everyone understands that we can still lose the game if we become complacent.

 

[DS]

Tie, first of all I dont think its because us drivers don't realize the battle (we) fight.After all,we are the soldiers .Its not complacency,its not that we've forgotten Jims constructive dissatisfaction.I believe that better subsidized management teams at the operations level could make it possible to attain all the volume you want if we had the proper tools.Someone sets unnatainable goals for the center manager and the drivers are held responsible when reality overrules the numbers.
They will send 8 pkg cars miles out of thier area to cover a p/u of 12, 8 foot high skids because they dont have any 5 tons.The drivers have to leave a 4 sq ft area to keep the resis they will have left after thier pickup log.You wonder why I say "theres plenty for everyone"when these guys work like bastards all day every day and ups can't handle the volume they have now! And getting a good new center mngr is like going to the casino,9 times out of 10 you lose.And then he's gone.Wheres the motivation?

 

[tieguy]

Tie, first of all I dont think its because us drivers don't realize the battle (we) fight.After all,we are the soldiers .Its not complacency,its not that we've forgotten Jims constructive dissatisfaction.I believe that better subsidized management teams at the operations level could make it possible to attain all the volume you want if we had the proper tools.Someone sets unnatainable goals for the center manager and the drivers are held responsible when reality overrules the numbers.
They will send 8 pkg cars miles out of thier area to cover a p/u of 12, 8 foot high skids because they dont have any 5 tons.The drivers have to leave a 4 sq ft area to keep the resis they will have left after thier pickup log.You wonder why I say "theres plenty for everyone"when these guys work like bastards all day every day and ups can't handle the volume they have now! And getting a good new center mngr is like going to the casino,9 times out of 10 you lose.And then he's gone.Wheres the motivation?

I think I called railway express roadway in an earlier post. I used to talk to the old timers who knew railway express. they told me stories of howw those drivers felt they were overworked and told the brown drivers take all you want when we came after their packages. I don't know, maybe thats the curse of the business we are in. At some point the drivers of the top dog in parcel decide they are too big and too tired of humping that cardboard and then start giving the business away to the hungry underdogs.

I see a lot of posts here where drivers say they won't submit sales leads because they don't want anymore work. I see the language against over 9.5's getting stronger with every contract. I hear all the complaints because we do squeeze blood out of rock and we do try to fill up those package cars. And without laying blame I do admit I wonder if we are railway express at some point before they turned sour and went belly up.

 

[trplnkl]

Who wouldn't get tired of working 11-12 hour days year round? I know I sure do and guess what? I aint gettin any younger. There are several things for a driver to consider when trying to develop volume leads. One being is this a customer we can lead into becoming a productive account or are they going to turn into an account that the driver has to spoon feed everyday to make sure the paper work is correct, the packages are prepared properly, the company and government guidelines are followed. Otherwise, that would be a negative account profit wise. Another thing we have to think about is whether or not the route can actually handle the account. Some potential pu accounts are so far out of the stream of the route flow that the logistics of going there everyday places such a time demand that it can not be worth the company's or the driver's time. When this happens the answer from the office is " make it work", " don't miss anything", "figure it out". Lots of help, huh?
I can't speak for anyone on here but myself, but I am willing to bet that IF the drivers had any hope that to company (center team) would/could do their part, 99% of the drivers would be looking for chances to sign up new accounts. Sadly to say, we can not reasonably expect that the company will do their part. What we CAN reasonably expect is to get 10 more stops added to everyones day and someone sent home. History does repeat. I don't know what kind of "numbers" the company needs/wants to justify adding routes instead of trying to cram pack fewer package cars but I do know that (in our center) the majority of the routes are already dispatched with 10.00-10.50 hour days and very few drivers hit scratch or better. As someone else already said, " Where's the incentive?".


Ya ya ya , I know, if I'm THAT unhappy, I should quit. Heard that before too.