UPS 2014 Annual Report Download - page 29

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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. Additionally, changes in interest rates
impact the valuation of our pension and postretirement benefit obligations and the related benefit cost recognized in the income
statement. The impact of changes in interest rates on our pension and postretirement benefit obligations and costs is discussed
further in the "Critical Accounting Policies and Estimates" section of this report.
We monitor and manage our exposures to changes in currency exchange rates and interest rates, and make 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.