The Battle for Value 2004: Fedex Corp vs Ups, Inc
In the year 2004, the U. S. domestic express delivery market worth $45 billion. Mainly, this vast market is divided between the two major package delivery companies, United Parcel Services (UPS) and Federal Express Corporations (FedEx). This service is consists of three categories: 1) Weights: Letters, Packages, Freights 2) Mode of Transit: Air, Ground 3) Timeliness: Overnight, second-day, 3-day delivery, regular delivery (4 or more days) The air-express portion of the entire U. S. market worth $25 billion, in which concentration is in letters, packages, overnight and deferred, and air or air-and-ground.
The UPS obtains 22 percent of its revenue from the air-express market where as FedEx which virtually all their activities are based on express delivery. UPS entered in the express delivery market with a price strategy that offered half price as FedEx fairs, but it was not a successful plan because of lack of service quality and not delivering packages on time. Since then, FedEx has the advantage in package express delivery market. In addition, due to the new agreement between China and the U. S. , there is a vast opportunity for both companies to improve their services.
According to economic and industry experts, China would become the world’s second-largest economy within 11 years and the largest by 2039. Therefore FedEx and UPS focused primarily on the import/export package market and not the intra-china domestic market, using local numbers to pick up and deliver parcels within the country . This huge growth in China shows more demand. To compare both companies in terms of their financials, UPS tends to have a better rate on asset, higher package delivery volume, and larger size of revenues (Table 1). UPS has a revenues of $33. 4 billion whereas FedEx of $22. billion.
Also in terms of Economic Value Added (EVA), FedEx carries a negative EVA for most years between 1992 to 2003 while UPS has a growing positive value added to the company. For the year 2003, the economic value added for UPS was $1. 19 billion whereas FedEx $169. 9 million (Table 2). However, UPS seems to be more successful than its competitor, FedEx, by comparing their financial statements, FedEx has a higher rate of growth and Earning Per Share. For Example, in year 2003, net income growth for UPS is a loss of 8. 93% while FedEx has a gain of 16. 9% for the same year (Table 3).
Based on this fact, we can determine that FedEx is more successful in performance considering its growth and being the biggest in China’s package delivery market which is a broad market with the new agreement between the U. S. and China. UPS may increase its productivity and quality of its services in air-express market in order to take a part of this broad market. It also can take advantage of tax shield by doing changes in its financial structure by carrying larger long debt. Moreover, FedEx may take advantage of its reputation in express quality services and expand its operation within the U. S. and in the European market.