UPS Thinks These Are 5 of Its Biggest Risks

1. The Economy (duh)

UPS’s success or failure is directly tied to economic health. But its well-being

depends on especially fickle economic factors.

Industrial production, consumer spending, and retail activity drive (or destroy) UPS’s

business.

2. Competition (duh)

Everyone’s got competition, but UPS has some particularly tricky

issues.

1. Government postal services

2. Consolidation

The United States Postal Service and other government entities are direct competitors with UPS. If a nation state tips the competitive scales in favor of its state-run business, UPS will be out of luck.

The logistics and shipping business is consolidating. Its $58 billion in sales outweighs FedEx Corporation’s (NYSE: FDX) $47 billion, but even a relatively minor merger could put UPS in a secondary spot.

3. Energy Prices

UPS is a giant energy consumer. Gasoline, diesel, and jet fuel get your package from

Point A to Point B.

In fiscal 2014, lower fuel prices saved UPS $144 million. But higher fuel usage bumped expenses up $36 million.

The company steadies its energy prices via indexed fuel surcharges, occasional

hedging, and a growing fleet of alternative fuel vehicles.

Its main worry isn’t dropped business—it’s smaller margins.

Expensive fuel could shift customer choice from high-margin air shipments

to lower-margin ground transport.

4. Hackers

In August 2014, hackers snagged data from 51 UPS stores across 24 states. Customers

were...not happy.

Hackers can steal data and interrupt services. This hack attack didn’t affect UPS’s business,

but the company will need to keep its IT system beefed up to avoid bigger problems.

5. Brand

“Our success depends in part on our ability to maintain the image of the UPS brand and our reputation for providing

excellent service to our customers.”- UPS 2014 10-K annual report

As the commodification of shipping and logistics companies continues, better

brands means bigger business.In 2014, UPS ranked 27th on Interbrand’s

Best Global Brands for 2014.By comparison, DHL ranked 81st and FedEx

inched in at 92nd place.

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