Question

United Parcel Service (UPS) provides package delivery services throughout the U.S. and the world. Discuss the impact of seasonal variations in the delivery business for forecasting the firm’s financing requirements.

Answer 1

During the holiday season, the delivery volumes tend to peak.

To run its operations, UPS needs investment in working capital. This includes increased storage space, delivery vehicles, temporary staffing requirements etc. These factors result in an increased investment in working capital.

When forecasting the firm's financing requirements, the peak season needs to be accounted for so that there is no disruption in the business and deliveries are completed on-time. Specifically, the following factors need to be considered in the forecast :

• Increased storage space - results in increased rent expense
• Increase in staff - temporary staff may be hired during peak season which increases the wage expense
• Increase in delivery vehicles - these may be leased, which increases the operating costs.