Fedex Corp. vs. United Parcel Service, Inc.

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...

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...king system that lowered its unit costs on short-haul trips, enabling the company to

compete more effectively with UPS. Rising inflation and global competitiveness compelled

manufacturers to manage inventories more closely and to emulate the just-in-time (JIT) supply

programs of the Japanese, creating a heightened demand for FedEx’s rapid and carefully

monitored movement of packages. And, finally, technological innovations enabled FedEx to

achieve important advances in customer ordering, package tracking, and process monitoring.

By the end of 2003, FedEx had nearly $15.4 billion in assets and net income of $830

million on revenues of about $22.5 billion. Exhibit 2 provides FedEx’s financial and analytical

ratios. The company had about 50,000 ground vehicles, 625 aircraft, 216,500 full- and part-time

employees, and shipped more than 5.4 million packages daily.