FedEx Founded in 1971, \"Fedex,

¶ … FedEx

Founded in 1971, "FedEx, properly FedEx Corporation, is a courier company offering overnight courier, ground, heavy freight, document copying and logistics services. FedEx is a syllabic abbreviation of the company's original name, Federal Express" (Wikipedia Encyclopedia).

Planning, Controlling and Management

In the process of planning, the company established connections with two emerging economies: China and India. It was the first express company to serve India with direct international air routes. In addition to the new countries already connected to, FedEx also wishes to expand inside the U.S. And to acquire Watkins Motor Lines. Besides the planning, the company also manages the relations with the community. The team members have been involved (as volunteers) in the process of helping the people affected by destructive events. The responsibility towards the community is also shown by the usage of hybrid vehicles, the upgrade to a more fuel-efficient aircraft fleet, the conversion to a predominantly solar-powered hub in Oakland, California and the expansion of the usage of recycled materials at FedEx Kinko's.

Types of Costs Involved

The fixed costs are: the amortization (computed using the straight line method), the salaries paid to the employees within administrative, financial and other departments of the company. A variable cost consists of the wages paid in accordance to the number of hours spend by the employee. The product cost is the one which involves the basic charges. However, a period cost is one that changes in accordance with some periodical modifications. The costs of transportation are strongly related to the cost of the fuel. Because of that, FedEx uses fuel surcharges which cover these fluctuations. Some net periodic benefit costs are: service cost, interest cost, amortization of prior service cost etc.

FedEx is not involved in manufacturing; it just provides services for the transportation of different types of goods. The non-manufacturing costs represent the core of the business. Regarding the process costs, these are the base charges. Because the services offered differ from a client to another, the key costs are the job-order ones.

The Relationship Between Cost, Volume and Profit

The revenues of FedEx increased during 2006 due to the improvement of the transportation segments, the package volume growth in their International Priority (IP) services at FedEx Express and the volume growth at FedEx Ground and FedEx Freight. Package volume growth at FedEx Ground increased in an accelerated way during the second half of 2006. However, revenues at FedEx Kinko's grew in a slightly manner, due to the slowing down resulting from the more competitive environment for copies.

The activity of FedEx is seasonal. These seasonal changes affect volumes, sales and earnings. In general, there is an augment in volumes during late November and December and low volumes throughout the first and third fiscal quarters.

The Relationship Between Financial Statements and the Net Income

By means of the Income Statement, the company illustrates its revenues and computes the net income by subtracting the expenses incurred. Therefore, referring to the FedEx Ground segment, for the year 2006 (in million dollars), we can say that from an amount of $5,306 in revenues, the following operating expenses are deducted: salaries and employee benefits $929; purchased transportation $2,019; rentals $133; depreciation and amortization $224; fuel $93; maintenance and repairs $118; intercompany charges $526; other $559. As a result, total operating expenses are in amount of $4,601. Thus, the operating income is $705.

Allocating Costs to Departments and the Costing Method

The costs of the activities are allocated using metrics such as relative revenues or estimated services provided. The costs assigned to the departments relate to the activity that they perform. The method used is not the traditional one, but the activity-based one. On the basis of the operating income, each segment is separately evaluated.

Some branches also carry out activities on behalf of other divisions of FedEx. For these, billings are based on negotiated rates which should reflect the fair value of the actions. As an example, "FedEx Kinko's segment revenues include package acceptance revenue, which represents the fee received by FedEx Kinko's from FedEx Express and FedEx Ground for accepting and handling packages at FedEx Kinko's locations on behalf of these operating companies" (FedEx Annual Report, May 2006).

The Decision-Making System

FedEx is strongly connected to the changes in price on the fuel market. As an effect, if the prices do not comprise the increases in the cost, it can choose to reject some offers on a short-term basis (until the fuel prices decrease again). This is the result of the fact that by charging in step with the increasing costs, the company could lose clients. FedEx is always keeping an eye on the market. The competitors are closely monitored so that FedEx can rapidly adapt to the changes. An important aspect is the fluctuation of the foreign currency exchange rate. It affects revenues and the sales prices.

The Costs and the Budgets

As all companies do, FedEx also releases the financial statements required at the end of each fiscal year. Their fiscal year ends on May 31st. "Revenue is recognized upon delivery of shipments or the completion of the service for our office and print services, logistics and trade services businesses"(FedEx Annual Report, May 2006). Because the basis of the activity relies on transportation means, the company deals with amortization and the costs of replacing spare parts. These spare parts are recorded at weighted-average cost. For the fuel and supplies, the cost is standard, using an approximation of the actual cost.

The Performance of the Company

The management of the company is in charge of keeping an internal control over the financial reports and verifying them. The management also controls an internal audit department. Each segment is a distinct component of the entire FedEx Company. Thus, in the case of each segment, the operating income is an indicator of the performance of the company. Also, the level of penetration on the market is important. They intend to capture the markets in other countries besides the ones in which operations are currently dealt with. The width of the networks developed is essential for future performance.

Capital Budgets and the Discounting Cash Flow Method

For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. The accounting test for whether an asset held for use is impair involves first comparing the carrying value of the asset with its estimated future undiscounted cash flows. If the cash flows do not exceed the carrying value, the asset must be adjusted to its current fair value" (FedEx Annual Report, May 2006). Also, in the case of goodwill there is an annual evaluation of its impairment. The routine applied is supported by assumptions and approximations in order to find out the fair value of the units. This is done in accordance with a discounting cash flow method.

Present Mission, Vision, Goals and Strategies

FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners, and suppliers." (http://www.FedEx.com/us/about/today/mission.html).

The company has established long-term goals as to boost revenue by 10% per year, augment cash flow, increase EPS by 10&-15% per year and accomplish a 10% increase in the operating margin. In order to develop the business the strategies devised are: grow internationally, grow through new services & alliances, through e-commerce and technology and grow core package business and the supply chain capabilities.

Finally, some conclusions can be drawn. The major competitors of FedEx are DHL Worldwide Network, UPS and United States Postal Service. FedEx's strengths are the customer loyalty, the good prices offered, the ability to track the packages and the wide coverage of all domains of interest. As weaknesses, we can mention the wide effect of fuel prices fluctuations. Opportunities are several, from which we can mention the broadening of the network to the non-penetrated markets, the developing through the acquisition of other existing service providers. The threats consist of the competitors' actions, the increases of the interest rates, the currency exchange risk, the increased security requirements, the regulatory environment for global aviation.

Report on UPS

UPS is the world's largest package delivery company and a global leader in supply chain services, operating in over 200 countries and territories"(UPS Annual Report, Dec 2005). "United Parcel Service, Inc. provides package delivery and supply chain solutions. The primary business of the Company includes time-definite delivery of packages and documents" (http://moneycentral.msn.com/investor/research/profile.asp?Symbol=UPS).

Planning, Controlling and Management

The company assures transport of letters and packages all over the world, via air or ground. It manages three divisions: U.S. Domestic Package Operations, International Package Operations and Supply Chain & Freight operations. In 2005, it extended the transportation capabilities by acquiring the Overnite Corp. This new acquisition represented a link to 50 states, Guam, Canada, Puerto Rico, Mexico and the Virgin Islands. Local networks in Poland and in the United Kingdom have also been built up and an utter focus has been laid on Asia.

By reinvesting the funds generated, the company sustains growth through acquisitions, the development of new products and the improvement of the services provided. A result of the reinvesting process is the Package Flow Technology. This is a multi-year re-engineering of their pickup and delivery of packages. It has proved very efficient.

Types of Costs Involved

As in the case of FedEx, UPS is basically confronted with the same types of cost. The variable costs are the wages of the employees; these are strongly related to the number of hours they spend working. Others are the ones which depend on the distance of transportation, or on the weight of the package. As for the fixed costs, they consist of the amortization, the salaries paid to the employees in the administrative or other departments (that receive a fixed sum).

Because they work within the same domain, UPS and FedEx depend on the fuel prices. This is a period cost, while the basic charges are product costs. Because of the service providing profile of the company, the manufacturing costs do not exist, while the non-manufacturing costs are all comprised in the financial statements. Also, this is not the case for process costs; we can only refer to the job-order ones.

The Relationship Between Cost, Volume and Profit

When analyzing its cost, volume and profit, the company refers to each of its branches separately. The results may differ in accordance with the competition on the market or with the efficiency that the division has. Generally, the profit is strongly related to the volume of sales and to the cost involved.

Taking as an example one branch, "U.S. Domestic Package revenue increased $1.650 billion, or 6.1%, for the year, primarily due to a 3.4% increase in average daily package volume and a 2.5% increase in revenue per piece. Ground volume grew 3.4%, and was positively impacted by a solid U.S. economy and our focus on middle market sales initiatives. Next Day Air volume grew 2.8% and deferred volume increased 4.0%, with growth in the manufacturing, business services, telecommunications and retail sectors. The growth in total U.S. Domestic Package volume strengthened throughout the year" (UPS Annual Report, Dec 2005).

The Relationship Between Financial Statements and the Net Income

Taking into consideration the Income Statement for the year 2005, we can depict the computation of the net income. All computations made in millions, from revenues that sum all the branches in amount of $42,581 we can subtract the operating expenses (compensation and benefits, others) in amount of $36,438. Then, we take into consideration the operating profit (loss), which in this case is a profit of $6,143 and other income (expense), which in this case represent an expense of $68. Thus, the net income before taxes is $6,075 and the net income after taxes is $3,870.

Allocating Costs to Departments and the Costing Method

UPS is composed by a set of three departments which act together in order to provide the best services in the range. These three components are: Domestic Package Products and Services (this means the delivery of packages by ground transportation), International Package Products and Services (this involves international shipments to more than 200 countries worldwide; the investments are focused on developing the infrastructure and technology in Asia.) and Supply Chain & Freight Services (these include the freight delivery and logistics businesses; they act with the goal of improving the performance by selecting the best solutions). The UPS Company allocates the costs in accordance to the requirements of each of these branches. This is identified as activity-based costing.

The Decision-Making System

Being a delivery service providing company, UPS is depending on the price of the fuel. The corporation is perfectly aware that the impact is major. Therefore, the pricing policy changes in accordance with the fluctuations.

If some markets are not efficient, then the company can introduce new special short-term offers which intend to increase the customers' interest. In accordance to their response, UPS can prolong the offers or change them. The main interest of the company is to widen its network because it is a well-known fact that bigger networks mean greater profits and grater market penetration.