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UPS uses tight controls to keep costs down

Several steps help the parcel-delivery service hold its outlays to a minimum

Sunday, March 12, 2000 By Steve Woodward of The Oregonian staff

Some companies with high transportation costs made cutting fuel costs part of their culture long before gasoline prices started soaring last year.

Keeping tight control of fuel costs and usage is nearly a religion at United Parcel Service, where fuel costs run less than 3 percent of total operating expenses, according to Norman Black, a spokesman in UPS' Atlanta headquarters.

UPS' system shows some of the things companies can do to reduce transportation expenses.

First, the package delivery behemoth buys most fuel through hedging, using futures and options to lock in favorable prices a year ahead.

Second, the company continually monitors jet fuel prices in the 200-plus countries in which it operates, cutting off purchases at airports in locations where prices rise above the worldwide norm.

Third, drivers are trained never to leave a delivery truck engine idling, even during a 15-second delivery.

Fourth, the company continually analyzes its route structure by periodically using global positioning satellites to collect data on moving trucks.

Fifth, UPS never buys a new gasoline, diesel or jet engine unless it meets the company's requirements for fuel efficiency.

Sixth, pilots of four-engine airplanes cut two engines after safely landing and use only two engines to taxi.

As for the future, UPS researchers are testing a hybrid diesel/electric vehicle that may cut fuel consumption significantly. And the UPS air operation is puzzling through the problem of connecting an arriving cargo plane to ground power as quickly as possible so its engines can be turned off sooner.

Despite conservation measures, UPS' fuel costs increased 12.7 percent last year, to $681 million from $604 million a year earlier. Spot oil prices, however, doubled over the same period.

Will higher fuel prices prompt UPS to raise its delivery rates?

"We do everything we can to avoid fuel surcharges," Black said.

After an annual year-end review of all expenses, including fuel, UPS managers adjust rates for the coming year. On Feb. 7, for example, average overnight delivery rates went up 3.5 percent, and ground delivery rates rose an average of 3.1 percent. Those rates, which reflected everything from labor costs to currency fluctuations, will not change before next year, Black said.

-- (, March 12, 2000

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