FedEx and UPS, Research Paper Example

History and Services Firms Provide

United Parcel Service was initially founded in 1907 as a messenger company (UPS, 2012). Since then, the company has grown into one of the world’s largest logistical companies. The company gradually consolidated over time, purchasing domestic logistics companies, taking on the current corporate shape. Due to the firm’s initial operational foundation, it is a strong competitor in the ground and freight forwarding areas.

Although FedEx is typically thought of as one large company, the moniker serves as the corporate umbrella for eight different firms that provide services in logistics, package servicing, and supply chain solutions. The current form of FedEx was created in January 1998, after the acquisition of Caliber System Inc. (Fedex, 2013). The acquisition served as a catalyst for FedEx to expand its mostly domestic operations worldwide: In order to change the brand name and focus, the collection of companies was officially renamed Fed Ex Corporation in 2000. Since that time, FedEx has engaged in large scale acquisitions (such as the purchase of Kinko’s in 2004) and a robust expansion into China and India with high-profile acquisitions of local companies.

Thus, while both companies started as domestic logistic firms, they have both expanded their operations globally and added additional services (including IT and supply chain services) in order to meet the needs of today’s customers.

Management

Currently, there is a dramatic difference in the management between the two firms; although that difference may erode and even disappear as the FedEx CEO looks to retire.

Indeed, although neither firm is considered to have “poor leadership”, FedEx certainly has a greater claim to management continuity and leadership compared to UPS at the present time. This is because Frederick Smith, the current CEO of FedEx, is also the firm’s founder and chairman (Fed Ex, 2012). One might rightly argue that in some cases, particularly in a fast moving sector such as logistics, continuity can be a bad thing: Smith, however, has continually shown himself to introduce bold initiatives to reshape the firm’s direction and strategy. The latest example of this occurred in October 2012 when Smith not only declared that the firm’s main traditional business model was moribund, but also outlined a new strategy “the profit improvement plan” that will increase profits through cost cutting, improving efficiency, and improving service offerings, including a more prominent focus on ground shipping capabilities (Wall Street Journal, October 12, 2012). Although Smith has continued to lead FedEx, his imminent retirement has led some to question whether the company will be able to survive (and thrive) under the transition.

This analysis should take nothing away from Dr. Scott Davis, the current serving CEO and Chairman of UPS. Taking over the corporate reigns in 2010, Davis led numerous corporate restructurings, including the firm’s small package organizational structure (UPS, 2012). From an investment perspective, however, the management of FedEx not only has been continuous over a longer period of time, but perhaps more importantly, has shown bolder strategic initiatives to change the company’s direction towards more profitable activities. Indeed, according to the Colography Group, a transportation consulting firm, FedEx’s focus on ground shipping, an area that has grown noticeably faster than air freight, gained one percentage point annually from 2001-2011, largely eating into the market share of UPS.

Overall, although FedEx presents a compelling case for reform, an investment in the company would be more a vote of confidence that the company’s board will fit the right replacement for the company.

Competitors

In the domestic logistics market, FedEx and UPS are the two largest providers. In fact, the two companies are often formally referred to as a “duopoly” in numerous settings (Stephens, 2012). Although the United States Postal Service does compete with Fed Ex and UPS, particularly for ground transportation, it is not considered a true competitive threat. Indeed, the only real competitors to FedEx and UPS start to emerge in global markets: DHL, the German logistics firm, has aimed to challenge both firms on domestic and foreign turf with dissonant results. Although DHL entered the US market in 2003 through acquisition, the company has not emerged as a robust rival to the duopoly: DHL announced that they would essentially only focus on helping customers ship abroad from the US in 2011, rather than compete on domestic logistics; the firm announced a $9.6 billion loss (to date) based on operations (Doss & Credeur, 2011). As a global competitor, however, DHL has emerged as a far more potent threat: DHL posted double-digit growth, largely on the back of international sales in 2011 and 2012. It has been particularly effective in important new markets such as China, India, and even Africa (Post & Parcel, 2012).

While FedEx and UPS main (domestic) competition will likely be each other, DHL is emerging as a key international competitor that may challenge the two firms’ ability to seek growth abroad.

Legal Issues

As is usually the case in a functioning duopoly, competitive acts more often happen in courts of law rather than on the operational playing field. The two firms have a notable history for legal involvement. Currently, both firms are under investigation for the illegal shipment of drugs although the initial infractions occurred in 2005. The two firms are also part of a larger legal battle that might affect the future of the industry: In 2010, a smaller logistics company filed antitrust complaints against both Fed Ex and UPS. According to FedEx’s 2011 Annual Report, although the company is tied up in legal battles across numerous jurisdictions, the company does not expect any material losses from the legal action (Fed Ex Annual Report, 2011). The company also acknowledged that the company faced a complex legal environment in the company’s 2012 Annual Report, but did not explicitly set aside funds for the existing legal actions. In their 2011 and 2012 annual report, UPS also acknowledges that numerous legal actions exist against the firm, including the purported abrogation of antitrust law, but the company has not laid aside specific funds for the legal action.

Sources:

Colography Group. Logistics Market Trends: 2012.

Doss, N. & Credeur, M.J. DHL reboots in U.S. after $9.6 billion bleed: freight markets. Bloomberg News. Available at: http://www.bloomberg.com/news/2011-04-14/dhl-reboots-in-u-s-after-9-6-billion-bleed-freight-markets.html

Fed Ex. Operational History. Available from: < http://about.van.fedex.com/fedex-opco-history>.

Fed Ex Annual Report, 2012. Available from: <http://www.fedex.com/ annual report>.

Fed Ex. 2011 Annual Report. Available from: <http://www.fedex.com/ annual report>.

Post and Parcel. Strong Q4 pushes Deutsche Post DHL profits up 43% in 2012. Available at: http://postandparcel.info/54256/news/companies/strong-q4-pushes-deutsche-post-dhl-profits-up-43-in-2012/.

Scheler, B. (October 9, 2012). FedEx Targeting Big Cost in $1.7 billion cost plan. Wall Street Journal. Available at: http://online.wsj.com/article/SB10000872396390443982904578047263738965092.html

Stephens, D. Is a FedEx/UPS Duopoly Good for Logistics? Supply Chain Trends. Available at: http://globalpurchasing.com/blog/fedexups-duopoly-good-logistics.

UPS Web Site. UPS Operational History. Available from: <http://www.ups.com/content/corp/about/history/index.html>.

UPS Web Site. 2011 Annual Report. Available from: http://www.investors.ups.com/phoenix.zhtml?c=62900&p=irol-reportsannual.

UPS Web Site. 2012 Annual Report. Available from: http://www.investors.ups.com/phoenix.zhtml?c=62900&p=irol-reportsannual.