UPS 2013 Annual Report Download - page 28

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We are exposed to the effects of changing prices of energy, including gasoline, diesel and jet fuel, and interruptions in
supplies of these commodities.
Changing fuel and energy costs may have a significant impact on our operations. We require significant quantities of fuel
for our aircraft and delivery vehicles and are exposed to the risk associated with variations in the market price for petroleum
products, including gasoline, diesel and jet fuel. We mitigate our exposure to changing fuel prices through our indexed fuel
surcharges and we may also enter into hedging transactions from time to time. If we are unable to maintain or increase our fuel
surcharges, higher fuel costs could adversely impact our operating results. Even if we are able to offset the cost of fuel with our
surcharges, high fuel surcharges may result in a mix shift from our higher-yielding air products to lower-yielding ground
products or an overall reduction in volume. If fuel prices rise sharply, even if we are successful in increasing our fuel surcharge,
we could experience a lag time in implementing the surcharge, which could adversely affect our short-term operating results.
There can be no assurance that our hedging transactions will be effective to protect us from changes in fuel prices. Moreover,
we could experience a disruption in energy supplies, including our supply of gasoline, diesel and jet fuel, as a result of war,
actions by producers, or other factors beyond our control, which could have an adverse effect on our business.
Changes in exchange rates or interest rates may have an adverse effect on our results.
We conduct business across the globe with a significant portion of our revenue derived from operations outside the United
States. Our operations in international markets are affected by changes in the exchange rates for local currencies, and in
particular the Euro, British Pound Sterling, Canadian Dollar, Chinese Renminbi and Hong Kong Dollar.
We are exposed to changes in interest rates, primarily on our short-term debt and that portion of our long-term debt that
carries floating interest rates. The impact of a 100-basis-point change in interest rates affecting our debt is discussed in the
“Quantitative and Qualitative Disclosures about Market Risk” section of this report.
We monitor and manage our exposures to changes in currency exchange rates and interest rates, and make limited use of
derivative instruments to mitigate the impact of changes in these rates on our financial position and results of operations;
however, changes in exchange rates and interest rates cannot always be predicted or hedged.
If we are unable to maintain our brand image and corporate reputation, our business may suffer.
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. Service quality issues, actual or perceived, even when false or unfounded, could tarnish the
image of our brand and may cause customers to use other companies. Also, adverse publicity surrounding labor relations,
environmental concerns, security matters, political activities and the like, or attempts to connect our company to these sorts of
issues, either in the United States or other countries in which we operate, could negatively affect our overall reputation and
acceptance of our services by customers. Damage to our reputation and loss of brand equity could reduce demand for our
services and thus have an adverse effect on our business, financial position and results of operations, and could require
additional resources to rebuild our reputation and restore the value of our brand.
A significant privacy breach or IT system disruption could adversely affect our business and we may be required to increase
our spending on data and system security.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic
information, and to manage or support a variety of business processes and activities. In addition, the provision of service to our
customers and the operation of our network involve the storage and transmission of proprietary information and sensitive or
confidential data, including personal information of customers, employees and others. Our information technology systems,
some of which are managed by third-parties, may be susceptible to damage, disruptions or shutdowns due to failures during the
process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer
viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. Groups of hackers may
also act in a coordinated manner to launch distributed denial of service attacks or other coordinated attacks that may cause
service outages or other interruptions. In addition, breaches in security could expose us, our customers or the individuals
affected to a risk of loss or misuse of proprietary information and sensitive or confidential data. Any of these occurrences could
result in disruptions in our operations, the loss of existing or potential customers, damage to our brand and reputation, and
litigation and potential liability for the company. In addition, the cost and operational consequences of implementing further
data or system protection measures could be significant.