Originally created 05/05/04

UPS, FedEx rivalry a study in contrasts



ATLANTA -- Every once in a while, a purple emblazoned truck shows up with a delivery at the home of UPS chief executive Mike Eskew, whose company's package cars are a familiar brown.

"The FedEx guy shakes his head when he gives it to my wife and says, 'I don't know what I'm doing here," Eskew recalls with a laugh.

The rivalry between UPS and FedEx is not as vocal as those in other industries - neither likes to utter the other's name and both insist they are focused on themselves - but it is equally intense. Besides the very different colors of their trucks, the two have chosen contrasting operational structures, labor strategies and business opportunities.

"Both of them are being challenged to expand their market share. That puts them in head-to-head competition with each other even if they don't talk a lot about that," said John Gnuschke, a University of Memphis economics professor who follows the shipping industry.

Based in Atlanta, UPS has grown since its 1907 founding into the world's largest shipping carrier with $33.5 billion in annual revenue and 357,000 employees, 60 percent of whom are part of a union. Its average driver earns $55,000 a year. While three-quarters of its business comes from U.S. small-package deliveries, it believes a big part of its future lies in overseas shipments and supply-chain management services, which help companies control the flow of their products and reduce costs.

In a recent interview with The Associated Press, Eskew said it's a numbers game.

"The small package market in the U.S. is about a $60 billion market. The worldwide supply-chain market is about a $3.2 trillion market," he said. "It's everything from the moment something gets made until it gets delivered for final delivery, and then after market, it's parts replacement."

He added, "It's, 'How do we participate and give our customers solutions beyond the small package?"'

On the other side, Memphis, Tenn.-based FedEx, founded in 1974, has $24 billion in annual revenue and 245,000 employees. Only its 4,000 pilots are unionized and it uses independent contractors as drivers for its U.S. ground deliveries. It won't say what its average driver earns. FedEx remains focused on its core business and believes supply-chain management is only a small piece of the puzzle.

"People here have been dealing with skeptics and naysayers since Day One, and we have been proving them wrong and will continue to do so," said FedEx spokesman Bill Margaritis. "Obviously, our model has proven to be successful because we're taking share and our margins are comparable."

In the United States, FedEx carries more packages by air than UPS. While UPS has an overwhelming advantage in U.S. ground volume, FedEx has been gaining share in recent quarters. A key strength for UPS, however, has been its international business, especially in China. The U.S. Postal Service and German shipper Deutsche Post AG also are major competitors.

As with labor and future goals, UPS and FedEx also have different operational philosophies.

UPS believes its biggest asset is in its integrated network. Each of its drivers, who work in defined areas, carries and delivers to their final destination items that were initially shipped by ground or air or from overseas.

FedEx uses different drivers to deliver air and ground shipments to their final destination, meaning a business could get a visit from multiple FedEx drivers with different colored trucks in the same day if it is receiving items from different methods of delivery. Yet another driver would deliver a FedEx package to your home.

As for management, UPS gives autonomy to its managers in units across the company, but its leadership is mostly centralized at its headquarters. FedEx has a mostly decentralized management structure, with its air, ground and freight units all based in separate parts of the United States.

UPS spokesman Norm Black said the company believes its strategy brings it closer with customers. "We believe it is absolutely a marketplace benefit to have a single unified work force that we have, to have men and women who spend their careers driving for this company," Black said. "They are tremendous ambassadors."

FedEx believes its strategy is more cost-efficient because thousands of its drivers are independent, Margaritis said. "If you try to serve all masters with one network, you will either inject certain unnecessary costs into that model or jeopardize service," he said.

The one common thread UPS and FedEx share seems to be lots of advertising and marketing.

UPS has run numerous television ads with its slogan, "What can brown do for you?" It also has printed the tagline, "Synchronizing the world of commerce," on its planes and package cars. The company does not release the amount it spends on advertising. To help increase its visibility, UPS also sponsors professional racing events and has its own NASCAR racing team. It also rebranded its 4,500 Mail Boxes Etc. stores as The UPS Store. It bought the chain for $190 million in 2001.

FedEx says it spent $249 million on advertising last year, as it ran numerous television ads with its slogan, "Relax, it's FedEx." The tagline on its trucks is "The world on time." Its name is on the Washington Redskins football stadium and the Memphis Grizzlies basketball arena under construction. It also recently rebranded the 1,200 stores in the Kinko's copy shop chain under the FedEx name. FedEx bought the chain earlier this year for $2.4 billion.

As for the rivalry, while they are hesitant to talk about it both companies say it has benefited them - and customers by stabilizing prices.

"We view it as an intense, but healthy rivalry," said FedEx's Margaritis. "This culture thrives on competition and excels at adversity."

On the Net:

FedEx: http://www.fedex.com

UPS: http://www.ups.com

U.S. Postal Service: http://www.usps.com