Essay About United Parcel Service And Fedex Corp.

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THE BATTLE FOR VALUE, 2004: FEDEX CORP.
VS. UNITED PARCEL SERVICE, INC.
FedEx will produce superior financial returns for
shareowners by providing high value-added supply
chain, transportation, business, and related information
services through focused operating companies
competing collectively, and managed collaboratively,
under the respected FedEx brand.
—FedEx mission statement (excerpt)
We serve the evolving distribution, logistics, and
commerce needs of our customers worldwide,
offering excellence and value in all we do. We
sustain a financially strong company, with broad
employee ownership, that provides a long-term
competitive return to our shareowners.
—UPS mission statement (excerpt)
On June 18, 2004, the United States and China reached a landmark air-transportation
agreement that quintupled the number of commercial cargo flights between the two countries.
The agreement also allowed for the establishment of air-cargo hubs in China and landing rights
for commercial airlines at any available airport. The pact represented the most dramatic
liberalization of air traffic in the history of the two nations, and FedEx Corporation and United
Parcel Service, Inc. (UPS), the only U.S. all-cargo carriers then permitted to serve the vast
Chinese market,1 were certain to be the primary beneficiaries of this opportunity.
News of the transportation agreement did not come as a major surprise to most observers
as U.S. and Chinese negotiators had been in talks since at least February. The stock prices of
both companies had been rising steadily since those talks began, but FedEx’s share price had
rocketed at a rate nearly five times faster than UPS’s.2 Exhibit 1 presents an illustration of recent
stock-price patterns for the two firms relative to the S&P 500 Index. FedEx had the largest
foreign presence in China, with 11 weekly flights—almost twice as many as UPS. The company
served 220 Chinese cities, and flew directly to Beijing, Shenzhen, and Shanghai. FedEx’s
volumes in China had grown by more than 50% between 2003 and 2004.
1 Northwest Airlines served China through both all-cargo and all-passenger services.
2 Between February 18 and June 18, 2004, FedEx’s stock price rose 13.9%, whereas UPS’s grew 3.1%.
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While UPS lagged behind FedEx in the Chinese market, it was still the world’s largest
package-delivery company and the dominant parcel carrier in the United States. UPS had been
active in China since 1988 and was the first carrier in the industry to offer nonstop service from
the United States. By 2003, UPS had six weekly Boeing 747 flights to China, with direct flights
to Beijing and Shanghai, serving nearly 200 cities. UPS reported a 60% growth in traffic on its
principal U.S.—Shanghai route since initiating that service in 2001, and it predicted that peakseason
demand would exceed its capacity.
As the U.S. package-delivery segment matured, the international markets—and especially
China—became a battleground for the two package-delivery giants. FedEx had virtually invented
customer logistical management, and was widely perceived as innovative, entrepreneurial, and
an operational leader. Historically, UPS had a reputation for being big, bureaucratic, and an
industry follower, but “Big Brown” was aggressively shedding its plodding image, as it too
became an innovator and a tenacious adversary. UPS had recently undergone a major overhaul of
its image, and was repositioning itself as a leading provider of logistics and supply-chain
management services.
The 2004 air-transportation agreement between China and the United States was a
watershed moment for the international package-delivery business—more than 100 new weekly
all-cargo flights were up for grabs with the United States’ largest trading partner. There was,
however, no guarantee for exactly how those new cargo routes would be allocated between UPS
and FedEx, companies that had been battling each other for dominance for more than 30 years.
Moreover, the eventual assignment to the region of other carriers would test each company’s
ability to fend off emerging competitive threats.
Against this backdrop, industry observers wondered how the titanic struggle between
FedEx and UPS would develop, particularly for investors in the two firms. Was the performance
of the companies in recent years predictive of the future? Success in China was widely seen as
the litmus test for corporate survival in the new millennium. Which company was better
positioned to attract the